ICDS X — the law in short
What the courts have decided on section ICDS X, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Embassy Property Developments Pvt Ltd v ACIT — a provision for onerous contracts is an expected loss barred by s.40A(13) unless it is really accrued cost
ITATCuts both waysValidity unconfirmed
My developer client has debited a provision for loss on onerous sale contracts. The Assessing Officer has disallowed it under s.36(1)(xviii) and s.40A(13). What is the argument?
The argument is to show that the amount is not an expected loss at all but cost that has already accrued against revenue already recognised. The Tribunal held that from AY 2017-18 the disallowance rests on three connected provisions — s.36(1)(xviii), which permits a marked to market or other expected loss only if computed in accordance with the ICDS; s.40A(13), which disallows any such loss except to the extent allowable under s.36(1)(xviii); and para 4(ii) of ICDS I, which bars recognition of expected losses unless another ICDS permits it — and that ICDS X does not recognise provisions for onerous executory contracts. It then restored the issue to the Assessing Officer to verify the assessee's project-wise computation, directing deletion if the claim is made out and, if not, determination of how much is an expected loss hit by s.40A(13).
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.