ICDS I - Accounting Policies | Educational Resource

ICDS I – Accounting Policies

Income Computation and Disclosure Standards

1. INTRODUCTION TO ICDS

1.1 What are Income Computation and Disclosure Standards (ICDS)?

Income Computation and Disclosure Standards (ICDS) were notified by the Central Board of Direct Taxes (CBDT) under Section 145(2) of the Income Tax Act, 1961. These standards were introduced to bring uniformity in the computation of taxable income and reduce disputes between taxpayers and tax authorities.

1.2 Legal Framework

Notification Number: 87/2016 dated September 29, 2016
Effective From: Assessment Year 2017-18 onwards
Applicable Period: Financial Year 2016-17 and subsequent years
Legal Authority: Section 145(2) of Income Tax Act, 1961

1.3 List of 10 ICDS

ICDS No.	Title	Corresponding AS
ICDS I	Accounting Policies	AS-1
ICDS II	Valuation of Inventories	AS-2
ICDS III	Construction Contracts	AS-7
ICDS IV	Revenue Recognition	AS-9
ICDS V	Tangible Fixed Assets	AS-10
ICDS VI	Effects of Changes in Foreign Exchange Rates	AS-11
ICDS VII	Government Grants	AS-12
ICDS VIII	Securities	AS-13
ICDS IX	Borrowing Costs	AS-16
ICDS X	Provisions, Contingent Liabilities and Contingent Assets	AS-29

2. OVERVIEW OF ICDS I – ACCOUNTING POLICIES

2.1 Definition

ICDS I deals with significant accounting policies that govern the computation of income chargeable to tax under the heads:

Profits and Gains of Business or Profession
Income from Other Sources

2.2 Purpose and Objective

Primary Objectives:

To ensure consistency in the application of accounting policies
To bring uniformity in income computation across assessees
To reduce litigation between taxpayers and tax authorities
To provide clarity on income recognition principles
To align tax computation with business realities

2.3 Key Features

Feature	Description
Purpose	For computation of income only, NOT for maintenance of books
Priority	Income Tax Act prevails over ICDS in case of conflict
Scope	Covers significant accounting policies and their disclosure
Prudence	Prudence concept NOT applicable unless specifically provided
Materiality	Materiality concept NOT specifically mentioned in ICDS I

3. APPLICABILITY OF ICDS I

3.1 Who Must Follow ICDS?

ICDS applies to:

All assessees following mercantile system of accounting
Corporate entities (Companies, LLPs)
Non-corporate entities (Partnership firms, Proprietorships subject to tax audit)
Trusts and AOPs having business income

3.2 Exemptions

ICDS does NOT apply to:

Individuals and HUFs not required to get accounts audited under Section 44AB
Cash basis assessees (following cash system of accounting)
Computation of Minimum Alternate Tax (MAT) under Section 115JB

3.3 Applicability Chart

Type of Assessee	Accounting Method	Audit u/s 44AB	ICDS Applicable?
Company	Mercantile	Yes	YES
Partnership Firm	Mercantile	Yes	YES
Individual (Business)	Mercantile	Yes	YES
Individual (Small Business)	Mercantile	No	NO
HUF (Business)	Mercantile	No	NO
Any Assessee	Cash	N/A	NO

4. KEY CONCEPTS IN ICDS I

4.1 What are Accounting Policies?

Accounting Policies are the specific accounting principles and methods of applying those principles adopted by an enterprise in the preparation and presentation of financial statements.

4.2 Significant Accounting Policies

Factors determining significance:

Magnitude of impact on financial statements
Influence on decisions of users of financial statements
Industry-specific practices
Nature of business operations
Peculiar circumstances of the enterprise

4.3 Substance Over Form

Definition: The accounting treatment and presentation of transactions and events should be governed by their substance and economic reality, not merely by their legal form.

Example:

A company sells an asset but retains substantially all risks and rewards of ownership through a buyback agreement. Under substance over form, this should NOT be treated as a sale but as a financing transaction, regardless of the legal documentation.

4.4 Prudence - Key Difference

Aspect	AS-1 (Accounting Standard)	ICDS I
Prudence Concept	✓ Applicable - Recognize losses when probable	✗ NOT applicable unless specifically provided in ICDS
Mark-to-Market Losses	Can be recognized based on prudence	NOT recognized unless other ICDS specifically provides
Expected Losses	Can be provided for	NOT recognized unless specific ICDS provision
Unrealized Gains	Generally not recognized	Same principle - mutatis mutandis applies to gains

4.5 Change in Accounting Policy

An accounting policy shall not be changed without reasonable cause.

Reasonable Cause includes:

Change in statutory requirements
Change in accounting standards or ICDS
Better presentation of financial information
More appropriate reflection of business operations
Change in nature of business

5. FUNDAMENTAL ACCOUNTING PRINCIPLES

5.1 Three Pillars of Accounting

5.1.1 GOING CONCERN

Definition: The enterprise is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future.

Implications:

Assets are recorded at cost, not at liquidation value
Depreciation is charged over useful life of assets
No intention or necessity of liquidation or curtailing operations
Financial statements prepared on continuity assumption

Example:

ABC Ltd. purchased machinery for ₹10,00,000 with a useful life of 10 years. Under going concern assumption, depreciation is charged at ₹1,00,000 per year. If the company were not a going concern, the machinery would be valued at its realizable value (say ₹3,00,000), which could be much lower.

Disclosure Requirement: If the going concern assumption is not followed, the fact must be disclosed.

5.1.2 CONSISTENCY

Definition: Accounting policies should be consistent from one period to another to ensure comparability of financial statements.

Implications:

Same accounting policies to be followed period after period
Enables meaningful comparison over time
Changes allowed only with reasonable cause
Effect of change must be quantified and disclosed

Example:

XYZ Ltd. has been using Written Down Value (WDV) method for depreciation. In FY 2023-24, it cannot suddenly switch to Straight Line Method (SLM) without reasonable cause. If changed, the company must:

Disclose the change in accounting policy
State the reason for change
Quantify the effect on current year's profit (e.g., profit increased by ₹2,50,000 due to change)

Year	Method	Depreciation	Impact
2022-23	WDV @ 15%	₹1,50,000	-
2023-24 (with change)	SLM	₹1,00,000	Profit ↑ by ₹50,000

5.1.3 ACCRUAL

Definition: Revenues and costs are recognized when they are earned or incurred (not when money is received or paid) and recorded in the financial statements of the periods to which they relate.

Key Points:

Income is recognized when it accrues (right to receive arises)
Expenses are recognized when they are incurred
Recognition is independent of actual receipt/payment
Matching principle - expenses matched with related revenues

Example - Revenue Recognition:

Date	Event	Recognition
01-Jan-2024	Goods sold to customer, Invoice raised for ₹5,00,000	Income recognized: ₹5,00,000
15-Jan-2024	Customer makes payment	Cash received (no additional income)

Example - Expense Recognition:

Date	Event	Recognition
20-Mar-2024	Electricity consumed in March, Bill for ₹50,000 received on 05-Apr-2024	Expense recognized in March: ₹50,000
10-Apr-2024	Payment made	Cash paid (no additional expense)

6. ICDS I VS AS-1 COMPARISON

6.1 Detailed Comparison Table

Sr. No.	Particulars	AS-1 (Accounting Standard)	ICDS I
1	Purpose	For preparation and presentation of financial statements	For computation of taxable income only, NOT for book maintenance
2	Applicability	All enterprises preparing financial statements	Only for computing income under business/profession or other sources
3	Prudence	✓ Specifically mentioned and applicable	✗ NOT mentioned; not applicable unless ICDS specifically provides
4	Materiality	✓ Specifically considered as an important factor	✗ NOT specifically mentioned
5	Substance over Form	✓ Applicable	✓ Applicable (Common feature)
6	Going Concern	✓ Fundamental assumption	✓ Fundamental assumption (Common feature)
7	Consistency	✓ Fundamental assumption	✓ Fundamental assumption (Common feature)
8	Accrual	✓ Fundamental assumption	✓ Fundamental assumption (Common feature)
9	Mark-to-Market Losses	May be recognized based on prudence	Shall NOT be recognized unless specifically provided in ICDS
10	Expected Losses	Can be provided for under prudence	Shall NOT be recognized unless specifically provided in ICDS
11	Change in Policy	Change allowed with justification	Change NOT allowed without "reasonable cause"
12	Disclosure Requirements	Detailed disclosure requirements for financial reporting	Disclosure for tax computation purposes
13	Legal Standing	Recommendatory (mandatory for companies under Companies Act)	Mandatory for tax computation for specified assessees
14	Conflict Resolution	Companies Act provisions prevail for companies	Income Tax Act provisions prevail over ICDS

6.2 Key Takeaways

Similarities:

Both recognize Substance over Form
Both follow Going Concern, Consistency, and Accrual principles
Both require disclosure of significant accounting policies

Critical Differences:

Prudence: The most significant difference - AS-1 follows prudence, ICDS I does not
Purpose: AS-1 for financial reporting, ICDS I only for tax computation
Materiality: Not emphasized in ICDS I
Expected/MTM Losses: Treatment differs significantly

7. DISCLOSURE REQUIREMENTS

7.1 Mandatory Disclosures

Under ICDS I, the following disclosures are required:

1. Significant Accounting Policies

All significant accounting policies adopted for computing income must be disclosed, including:

Revenue recognition policy
Depreciation method and rates
Inventory valuation method
Foreign exchange transactions treatment
Treatment of government grants
Borrowing cost capitalization policy

2. Change in Accounting Policy

If any accounting policy is changed during the year:

Nature of change must be disclosed
Reason for change ("reasonable cause")
Amount by which any item is affected by such change
Impact on taxable income (to the extent ascertainable)

3. Deviation from Fundamental Assumptions

If any of the three fundamental assumptions (Going Concern, Consistency, Accrual) is NOT followed:

The fact must be disclosed
Reason for such deviation
Financial impact of the deviation

7.2 Disclosure in Tax Audit Report

Form 3CD has been revised to include disclosures relating to ICDS:

Clause in Form 3CD	Disclosure Requirement
Clause 13(e)	Adjustments on account of ICDS provisions
Clause 13(f)	Effect of various ICDS on profit/loss
Clause 30C	Detailed ICDS-wise impact on income
New Clauses	Specific disclosures for each ICDS (I to X)

7.3 Sample Disclosure Format

Example Disclosure:

NOTE: SIGNIFICANT ACCOUNTING POLICIES FOR TAX COMPUTATION

1. Basis of Accounting
The company follows mercantile system of accounting. Income and expenses are recognized on accrual basis in accordance with Income Computation and Disclosure Standards (ICDS) notified under Section 145(2) of the Income Tax Act, 1961.

2. Revenue Recognition
Revenue from sale of goods is recognized when significant risks and rewards of ownership are transferred to the buyer, in accordance with ICDS IV.

3. Change in Accounting Policy
During the year, the company changed its method of inventory valuation from Weighted Average to FIFO method. This change was necessitated to comply with ICDS II provisions. The effect of this change has resulted in an increase in taxable income by ₹3,50,000.

8. PRACTICAL EXAMPLES

8.1 Example 1: Prudence vs ICDS I Treatment

Scenario: ABC Ltd. holds shares of XYZ Ltd. as stock-in-trade purchased at ₹100 per share. As on 31st March 2024, the market price is ₹80 per share.

Particulars	Cost Price	Market Price
100 shares of XYZ Ltd.	₹10,000	₹8,000
Unrealized Loss	₹2,000

Treatment under AS-1 (with Prudence):

Value shares at lower of cost or market value = ₹8,000
Recognize unrealized loss of ₹2,000 in P&L
Closing stock = ₹8,000

Treatment under ICDS I (without Prudence):

Mark-to-market loss NOT recognized (ICDS I para 4(ii))
Value shares at cost = ₹10,000
No loss recognized in income computation
Loss recognized only when shares are actually sold

Tax Implication:

Taxable income is higher by ₹2,000 under ICDS I as compared to AS-1 treatment.

8.2 Example 2: Change in Accounting Policy

Scenario: DEF Ltd. has been using WDV method for depreciation. In FY 2023-24, it proposes to change to SLM method.

Particulars	Amount (₹)
Original Cost of Asset	10,00,000
WDV as on 01-Apr-2023	7,00,000
Remaining Life	7 years

Depreciation Calculation:

Method	Calculation	Depreciation
WDV @ 15%	₹7,00,000 × 15%	₹1,05,000
SLM (New)	₹7,00,000 ÷ 7 years	₹1,00,000
Difference	₹5,000

ICDS I Requirements:

Reasonable Cause: Company must demonstrate reasonable cause for change (e.g., change in legal requirements, better representation of usage pattern)
Disclosure: Must disclose:
- Nature of change: Change from WDV to SLM
- Reason: Better reflection of asset usage
- Impact: Profit increased by ₹5,000
Tax Impact: Taxable income increases by ₹5,000

Note: Without reasonable cause, the change may be rejected by tax authorities.

8.3 Example 3: Substance Over Form

Scenario: GHI Ltd. "sells" machinery to JKL Bank for ₹50,00,000 but retains right to buy back after 3 years at ₹55,00,000. GHI continues to use the machinery.

Legal Form: Sale transaction with separate buyback agreement

Economic Substance:

GHI retains all risks and rewards of ownership
GHI continues to use the asset
Fixed buyback price suggests financing arrangement
Difference of ₹5,00,000 represents interest

Treatment under ICDS I (Substance over Form):

Aspect	Treatment
Transaction Type	Loan/Financing (not sale)
Asset	Remains in books of GHI Ltd.
₹50,00,000 received	Treated as borrowing (Liability)
₹5,00,000 difference	Finance cost spread over 3 years
Depreciation	Continues to be charged

Annual Treatment:

Year	Interest Expense	Depreciation
Year 1	₹1,66,667	As per policy
Year 2	₹1,66,667	As per policy
Year 3	₹1,66,666	As per policy

Key Point: This is a financing transaction, NOT a sale, based on substance over form principle of ICDS I.

8.4 Example 4: Accrual Basis

Scenario: MNO Ltd. (follows mercantile system) has the following transactions in March 2024:

Date	Transaction	Amount (₹)	Payment/Receipt Date
15-Mar-24	Services rendered, Invoice raised	2,00,000	10-Apr-24 (received)
25-Mar-24	Rent for March (Bill in April)	50,000	05-Apr-24 (paid)
31-Mar-24	Interest accrued but not received	15,000	30-Jun-24 (to be received)

Recognition under ICDS I (Accrual Basis):

Transaction	Recognition in FY 2023-24	Reason
Service Income	₹2,00,000	Services rendered in March, invoice raised
Rent Expense	₹50,000	Relates to March, even though bill received in April
Interest Income	₹15,000	Accrued in March, right to receive arose

Taxable Income for FY 2023-24:

Particulars	Amount (₹)
Service Income	2,00,000
Interest Income	15,000
Total Income	2,15,000
Less: Rent Expense	(50,000)
Net Income	1,65,000

Note: Cash receipt/payment dates are irrelevant for income recognition under accrual basis mandated by ICDS I.

9. IMPORTANT CASE LAWS

9.1 Landmark Judgment: Chamber of Tax Consultants Case

The Chamber of Tax Consultants & Anr. vs Union of India & Ors.

Court: Delhi High Court

Citation: W.P.(C) 5595/2017

Date: November 8, 2017

Bench: Justice S. Muralidhar and Justice Pratibha M. Singh

Facts of the Case:

Chamber of Tax Consultants filed writ petition challenging constitutional validity of ICDS
Challenged Notification No. 87/2016 and 88/2016 dated September 29, 2016
Also challenged Circular No. 10/2017 dated March 23, 2017
Main contention: ICDS provisions override binding judicial precedents

Arguments by Petitioners:

ICDS violates Articles 14, 19(1)(g), 141, 144, and 265 of Constitution
Amounts to excessive delegation of legislative powers
ICDS overrides Supreme Court and High Court judgments
Creates discrimination between cash and mercantile system taxpayers
Lacks legal certainty and creates compliance burden

Key Issues Before Court:

Whether Section 145(2) amounts to excessive delegation?
Whether ICDS can override binding judicial precedents?
Whether ICDS provisions violate constitutional provisions?
Validity of specific provisions of various ICDS

9.2 Court's Ruling on ICDS I

Judgment on ICDS I - Accounting Policies

HELD: ICDS I provisions removing "prudence" concept are ULTRA VIRES and STRUCK DOWN

Court's Reasoning:

Concept of prudence is integral to mercantile system of accounting
Removal of prudence contrary to settled judicial precedents
Prudence principle recognized by Supreme Court in multiple cases
ICDS cannot override fundamental accounting principles established by courts

Specific Finding:

"ICDS I which does away with the concept of 'prudence' is contrary to the Act and binding judicial precedents and is therefore unsustainable in law."

Important Observations:

Observation	Impact
Section 145(2) to be read down	Cannot override binding judicial precedents
ICDS not meant to overrule Act/Rules	Act provisions prevail over ICDS
Prudence removal unconstitutional	ICDS I prudence provisions struck down
Executive cannot validate contrary to law	Validation is legislative power only

9.3 Other Relevant Case Laws

1. CIT vs. Triveni Engineering & Industries Ltd.

Citation: (2011) 49 DTR 253 (Del)

Court: Delhi High Court

Principle: Prudence principle recognized - provision for known liabilities is allowable

Relevance: Supports the view that prudence is fundamental to mercantile accounting

2. CIT vs. Advance Construction Co.

Principle: Prudence in accounting for anticipated losses

Relevance: Established that prudence cannot be ignored in tax computation

3. Rotork Controls Pvt. Ltd. vs. CIT

Citation: (2009) 314 ITR 62

Court: Supreme Court

Principle: Provision for present obligations in respect of past events is allowed

Relevance: Supports accrual principle and recognition of liabilities

4. Commissioner of Income Tax vs. Poddar Cement P. Limited

Citation: (1997) 226 ITR 625 (SC)

Court: Supreme Court

Principle: Doctrine of "updating construction" - law must acknowledge emerging trends

Relevance: Need for accounting standards to evolve with business practices

5. Shri Prithvi Cotton Mills Limited vs. Broach Borough Municipality

Citation: (1969) 2 SCC 283

Court: Supreme Court

Principle: Executive cannot override binding judicial decisions

Relevance: Fundamental to Chamber of Tax Consultants judgment

9.4 Post-Judgment Scenario

Current Status (as of 2025):

Parts of ICDS I relating to prudence have been struck down
Taxpayers can rely on prudence principle as per judicial precedents
Where ICDS conflicts with binding judgments, judgments prevail
Income Tax Act provisions always prevail over ICDS
Assessees should maintain documentation supporting their position

10. QUESTIONS & SOLUTIONS

Aspect	ICDS	Accounting Standards (AS)
Purpose	For tax computation only	For financial reporting and book-keeping
Issued By	Central Government (CBDT)	Institute of Chartered Accountants of India (ICAI)
Applicability	Specified assessees for tax computation	All enterprises preparing financial statements
Prudence	Not applicable (struck down by court)	Applicable
Legal Status	Mandatory under Income Tax Act	Mandatory under Companies Act for companies

Scenario	ICDS Applicable?
Individual with business turnover of ₹2 crore (audit required)	YES
Individual with business turnover of ₹50 lakhs (no audit)	NO
HUF with business income of ₹3 crore (audit required)	YES
HUF with business income of ₹80 lakhs (no audit)	NO

Answer:

Substance over Form means transactions should be accounted for based on their economic substance and commercial reality, not just their legal form or documentation.

Practical Example:

Company A "sells" equipment to Bank B for ₹10 lakhs with a buyback clause at ₹11 lakhs after 2 years.

Aspect	Legal Form	Economic Substance
Transaction	Sale + Buyback	Loan/Financing
Asset ownership	Transferred to bank	Still with Company A
₹1 lakh difference	Buyback premium	Interest on loan
Treatment	Revenue from sale	Borrowing + Interest expense

ICDS I Requirement: This should be treated as a financing arrangement, not a sale, because:

Company A retains risks and rewards
Equipment stays with Company A
Fixed buyback price indicates financing

Answer:

The Delhi High Court in Chamber of Tax Consultants vs. Union of India (2017) held that:

"ICDS I which does away with the concept of 'prudence' is contrary to the Act and binding judicial precedents and is therefore unsustainable in law."

Key Impact:

Aspect	Before Judgment	After Judgment
Prudence Concept	Removed by ICDS I	Restored - applicable as per judicial precedents
MTM Losses	Not recognized	Can be recognized based on prudence
Expected Losses	Not recognized	Can be provided for under prudence
ICDS Priority	Mandatory	Cannot override binding judgments

Practical Implication:

Taxpayers can claim prudence-based provisions
Mark-to-market losses on trading securities can be recognized
Expected losses can be provided for with proper justification
Judicial precedents prevail over ICDS provisions

Important Note: Where there is conflict between ICDS and Supreme Court/High Court judgments, the judgments prevail.

Assumption	Meaning	Example
1. GOING CONCERN	Enterprise will continue operations for foreseeable future	Assets valued at cost, not liquidation value
2. CONSISTENCY	Same accounting policies to be followed consistently	Cannot change depreciation method arbitrarily
3. ACCRUAL	Income/expenses recognized when earned/incurred	Credit sales recognized immediately, not on cash receipt

Answer:

NO, you do NOT need to maintain separate books of account for ICDS.

Clear Understanding:

Purpose	Standard to Follow
Maintaining Books of Account	AS (Accounting Standards) / Ind AS
Financial Statements Preparation	AS / Ind AS / Companies Act requirements
Computing Taxable Income	ICDS

Practical Approach:

Maintain books as per AS/Ind AS (for Companies Act compliance)
Prepare financial statements as per applicable standards
Make adjustments for ICDS while computing taxable income
Document adjustments in tax computation and Form 3CD

Example:

Particulars	As per Books (AS)	ICDS Adjustment	Taxable Income
Book Profit	₹10,00,000	-	₹10,00,000
MTM Loss provided	-₹50,000	+₹50,000 (Add back)	-
Total	₹9,50,000	-	₹10,50,000

Note: For complex differences, some companies maintain a parallel computation worksheet, but this is not mandatory.

Answer:

If ICDS is not followed by an assessee who is required to follow it, the consequences are:

1. Best Judgment Assessment under Section 144

Assessing Officer can reject the books of account
Income can be assessed on "best judgment" basis
AO's estimate may be higher than actual income

2. Rejection under Section 145(3)

Books can be rejected if not maintained as per ICDS
AO can compute income using other methods
May result in higher tax liability

3. Penalty and Interest

Interest under Section 234A/B/C on additional tax
Possible penalty under Section 271(1)(c) for concealment
Penalty can be 100% to 300% of tax evaded

4. Tax Audit Qualification

Auditor must report non-compliance in Form 3CD
Adverse remarks in audit report
Scrutiny assessment more likely

Example:

Company X (required to follow ICDS) does not recognize accrued income of ₹5 lakhs, following cash basis instead of accrual basis mandated by ICDS.

Consequence	Impact
AO adds ₹5 lakhs to income	Additional tax @ 30% = ₹1,50,000
Interest @ 1% p.m. for 6 months	₹9,000
Penalty u/s 271(1)(c) @ 100%	₹1,50,000
Total Additional Outflow	₹3,09,000

Best Practice: Always comply with ICDS and document reasons for any apparent non-compliance.

11. IMPLEMENTATION FLOWCHART

ICDS I Applicability and Compliance Flowchart

START
Assessee has Business/Professional Income

↓

DECISION 1
Is the assessee Individual or HUF?

YES →

DECISION 2
Tax Audit required u/s 44AB?

NO →

ICDS NOT APPLICABLE
Follow regular accounting

YES →

Continue to Decision 3

NO →

(Company, Partnership, etc.)
Continue to Decision 3

↓

DECISION 3
Following Mercantile System?

NO (Cash System) →

ICDS NOT APPLICABLE
Follow cash accounting

YES →

Continue

↓

                        ICDS APPLICABLE

                        Must follow ICDS for tax computation

↓

STEP 1: Identify Significant Accounting Policies
• Revenue recognition
• Depreciation method
• Inventory valuation
• Foreign exchange
• Others

↓

STEP 2: Ensure Compliance with Fundamental Principles
✓ Going Concern
✓ Consistency
✓ Accrual Basis

↓

STEP 3: Apply ICDS I Provisions
• Substance over form
• No prudence (unless court precedent)
• No MTM losses (unless specific ICDS)
• Reasonable cause for policy changes

↓

DECISION 4
Any change in accounting policy?

YES →

Document:
• Nature of change
• Reasonable cause
• Quantified impact
• Disclosure

NO →

Continue

↓

STEP 4: Compute Taxable Income
Book Profit (AS/Ind AS)
+ ICDS Adjustments
= Taxable Income

↓

STEP 5: Disclosure in Form 3CD
• Clause 13(e) - ICDS adjustments
• Clause 13(f) - Effect on profit/loss
• Clause 30C - ICDS-wise impact
• Significant accounting policies

↓

DECISION 5
Conflict with judicial precedent?

YES →

                                Judicial Precedent Prevails

                                (Per Chamber of Tax Consultants case)

                                Document position clearly

NO →

Apply ICDS provisions

↓

FILE INCOME TAX RETURN
With ICDS-compliant computation

Key Decision Points Summary

Decision Point	Question	Action
Decision 1	Individual/HUF?	If yes, check tax audit requirement
Decision 2	Tax audit required?	If no (for Individual/HUF), ICDS not applicable
Decision 3	Mercantile system?	If no (cash system), ICDS not applicable
Decision 4	Policy changed?	If yes, document reasonable cause and impact
Decision 5	Conflict with precedent?	If yes, judicial precedent prevails

📌 EDUCATIONAL DISCLAIMER: This resource is for educational purposes only and does not constitute legal advice. For specific tax matters, consult a qualified Chartered Accountant or tax professional. Tax laws and interpretations may change. Always verify with current provisions and professional guidance.