LKS Direct Tax Amicus, June 2025

Navigating fair value adjustments in income tax computations

The article in this issue of Direct Tax Amicus examines the implications of fair value accounting advocated by the Accounting Standards issued by the ICAI. It delves into the question as to whether the computation of income for the purposes of the Income Tax Act can be made with reference to the fair value accounting carried out in books of accounts. Considering various examples, the authors (Bharathi Krishnaprasad, Venkat Ramanan and Bhavana Kulluru) also explore the potential challenges and the supporting arguments in this regard. According to them, with evolving Accounting Standards and incongruence persisting between the tax laws and such standards, doubts and disputes surrounding taxability and claim of deductions are bound to arise. Observing that deliberations on this front would dilute if tax laws explicitly recognise or deviate from the treatment adopted in books of accounts, the authors note that till such clarity expressly emerges, it would not be incorrect for the assessees to mirror an accounting treatment for tax computation as well, provided such an act is not expressly prohibited under the IT Act.

Read the full article here

Notifications & Circulars

• Due date for furnishing Return of Income for AY 2025-26 extended
• ITR Form 6 substituted – Highlights of changes
• ITR Form 7 substituted – Highlights of changes
• Zero Coupon Bonds notified
• Form ITR-U substituted

Ratio decidendi

• Income from other sources – Section 56(2)(x) applies to any immovable property including agricultural land, from buyer’s perspective, irrespective of its classification as a ‘capital asset’ under Section 2(14) for the seller – ITAT Ahmedabad
• Deductions can be claimed under Section 80-HHC and 80-IA conjointly, provided the aggregate deductions do not exceed the gross total income – Larger Bench of Supreme Court
• Short-term capital loss on which STT was paid can be set off against short-term capital gain on which STT was not paid – ITAT Mumbai
• Delay in share sale being ‘depravation’ of capital, escrow a/c interest is non-taxable – ITAT Mumbai
• Sales tax subsidy claim disallowed in search assessment sans declaration in original or Section 153A return – ITAT New Delhi

Read the full newsletter LKS Direct Tax Amicus, June 2025 (Complete).........................................

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