CALS Case Study 01. – Direct Tax Laws

Case Study on Button of White Keyboard.
Case Study – Button on White Modern Computer Keyboard.

Is it permissible under section 147 to reopen the assessment of the assessee on the ground that income has escaped assessment, after a change of opinion as to a loss being a speculative loss and not a normal business loss, consequent to a mere re-look of accounts which were earlier furnished by the assessee during assessment under section 143(3)?

ACIT v. ICICI Securities Primary Dealership Ltd. (2012) 348 ITR 299 (SC)

Facts of the case : In the above case, the Assessing Officer had completed the assessment of assessee under section 143(3) after taking into consideration the accounts furnished by assessee. After the lapse of four years from relevant assessment year, the Assessing Officer had reopened the assessment of assessee under section 147 on the ground that after re-look of the accounts of the relevant previous year, it was noticed that the assessee company had incurred a loss in trading in share, which was a speculative one. Therefore, such loss can only be set off against speculative income. Consequently, the loss represents income which has escaped assessment. Accordingly, the Assessing Officer came to a conclusion that income had escaped assessment and passed an order under section 147.

List of Accounting Standards

Accounting Standards
AS-01     Disclosure of Accounting Policies (Accounting Policy)
AS-02    Valuation of Inventories (Inventory)
AS-03    Cash Flow Statements (CFS)
AS-04    Contingencies and Events occurring after the balance sheet date (Events)
AS-05    Net profit or Loss for the Period, Prior-Period Items, & Changes in Accounting
Policies (PPI)

AS-06    Depreciation Accounting (Depreciation)
AS-07    Construction Contracts (Construction)
AS-08    Research & Development (Withdrawn)
AS-09    Revenue Recognition (Revenue)
AS-10    Accounting for Fixed Assets (Fixed Assets)
AS-11    The Effects of Changes in Foreign Exchange Rates (Forex)
AS-12    Accounting for Fixed Assets (Fixed Assets)
AS-13    Accounting for Investments (Investment)
AS-14    Accounting for Amalgamations (Amalgamation)
AS-15    Employees Benefits (Employee)
AS-16    Borrowing Costs (Loan)
AS-17    Segment Reporting (Segment)
AS-18    Related party Disclosures (Related party)
AS-19    Leases (Leases)
AS-20    Earnings per Share (EPS)
AS-21    Consolidated Financial Statements
AS-22    Taxes on Income (DTA)
AS-23    Accounting for Investments in Associations in Consolidated Financial Statement

AS-24    Discontinuing Operations (DCO)
AS-25    Interim Financial Reporting (IFR)
AS-26    Intangible Assets (Intangible)
AS-27    Financial Reporting of Interest of Joint Ventures (Joint Venture)
AS-28    Impairment of Assets (Impairment)
AS-29    Provisions, Contingent Liabilities and Contingent Assets (Contingency)
AS-30    Financial Instruments: Recognition and Measurements (FI:Recognition)
AS-31    Financial Instruments: presentation (FI:Presentation)
AS-32    Financial Instruments: Disclosures (FI:Disclosures)


An overview of Central Excise

Levy – Section 3 of CEA 1944

Section 3. Duties specified in First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied. –

(1) There shall be levied and collected in such manner as may be prescribed –
(a)  a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or  manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);
(b) a special duty of excise, in addition to the duty of excise specified in clause (a) above, on excisable goods excluding goods produced or manufactured in special economic zones specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule.
Provided that the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured,-
(i) Omitted.
(ii) by a hundred per cent export-oriented undertaking and brought to any other place in India, shall be an amount equal to the aggregate of the duties of customs which would be leviable under  the Customs Act, 1962 (52 of 1962) or any other law for the time being in force, on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value; the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975).
Explanation 1. – Where in respect of any such like goods, any duty of customs leviable for the time being in force is leviable at different rates, then, such duty shall, for the purposes of this proviso, be deemed to be leviable at the highest of those rates.
Explanation 2. – In this proviso, –
(i)   Omitted.
(ii)  “hundred per cent export-oriented undertaking” means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act.;
(iii)  “Special Economic Zone” has the meaning assigned to it in clause (ZA) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).
(1A) The provisions of sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India by,  or on behalf of, Government, as they apply in respect of goods which are not produced or manufactured by Government.
(2) The Central Government may, by notification in the Official Gazette, fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings, in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as chargeable with duty ad valorem and may alter any tariff values for the time being in force.
(3) Different tariff values may be fixed –
(a) for different classes or descriptions of the same excisable goods; or
(b) for excisable goods of the same class or description –
(i)    produced or manufactured by different classes of producers or manufacturers; or
(ii)   sold to different classes of buyers :
Provided that in fixing different tariff values in respect of excisable goods falling under sub-clause (i) or sub-clause (ii), regard shall be had to the sale prices charged by the different classes of producers or manufacturers or, as the case may be, the normal practice of the wholesale trade in such goods




“As a noun – The amount of cash or cash equivalent paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction.”

Common Cost

“Cost relating to more than one product or service.”

Committed Cost

“Cost arising from prior decisions, which cannot, in the short run, be changed. Committed cost incurrence often stems from strategic decisions concerning capacity with resulting expenditure on plant and facilities. Initial control of committed costs at the decision point is through investment appraisal techniques.”

Avoidable Cost

“Specific cost of an activity or sector of a business that would be avoided if the activity or sector did not exist.”

Conversion Cost

“Cost of converting materials into finished product, typically including direct labour, direct expense and production overhead.”

Direct Cost

“Expenditure that can be attributed to a specific cost unit, for example material that forms part of the product.”

Distribution costs

“Cost of warehousing saleable products and delivering them to customers. These costs are reported in the income of statement.”

Discretionary Cost

“Cost whose amount within a time period is determined by a decision taken by the appropriate budget holder. Marketing, research and training are generally regarded as discretionary costs. Also known as managed or policy costs.”

Fixed Cost

“Cost incurred for an accounting period, that, within certain output or turnover limits, tends to be unaffected by fluctuations in the levels of activity (output or turnover).”

Example: Rent

Joint Cost

“Cost of a process which results in more than one main product.”

Variable Cost

Cost which varies with the output is variable cost.

Example: Direct Material

Semi Variable Cost/Step up cost

This cost considers a combination of fixed cost & variable cost.

Long-term Variable Cost

“All costs are variable in the long run. Full unit costs may be surrogates for long-term variable costs if calculated in a manner which utilizes long-term cost drivers, for example activity-based costing.”

Marginal Cost

“Part of the cost of one unit of product or service that would be avoided if the unit was not produced, or that would increase if one extra unit were produced.”

Notional Cost

“Cost used in product evaluation, decision making and performance measurement to reflect the use of resources that have no actual (observable) cost. For example, notional interest for internally generated funds or notional rent for use of space.”

Opportunity Cost

“The value of the benefit sacrificed when one course of action is chosen in preference to an alternative. The opportunity cost is represented by the foregone potential benefit from the best rejected course of action.”

Prime Cost

“Total cost of direct material, direct labour and direct expenses.”

Product Cost

“Cost of a finished product built up from its cost elements.”

Production Cost

“Prime cost plus absorbed production overhead.”

Value Chain Analysis (Advanced Management Accounting)

In Value Chain analysis, business activities are classified into primary activities and support activities.

S. No


Primary Activity/Support Activity

1 Order processing and distribution Primary Activity
2 Installation, repair and parts replacement Primary Activity
3 Purchase of raw material and other consumable stores Support Activity
4 Transforming inputs into final products Primary Activity
5 Selection, promotion, appraisal and employee relations Support Activity
6 Material handling and warehousing Primary Activity
7 General management, planning, finance, accounting Support Activity
8 Communication, pricing and channel management Primary Activity


Kaizen costing is a cost reduction approach popular in Japan and now having global implication is explained below.
It is a cost reduction process which aims continuous improvement in manufacturing process. It sets monthly cost reduction target and try to get a target profit based on monthly basis and ultimately achieves annual cost reduction. It was first applied by a Japanese car manufacturer Daihatsu where six plans were involve:
Plan 1- Production, distribution, and Sales Plan(which includes projections of contribution margins from sales).
Plan 2- Projected parts and Materials Costs.
Plan 3– Plant Rationalization Plan(projected reductions in manufacturing variable costs).
Plan 4- Personnel Plan(for direct labor work force and service department personnel).
Plan 5- Facility Investment Plan (capital budget and depreciation).
Plan 6- Fixed Expense Plan(for prototype design costs, maintenance costs, advertising and sales promotion expenses, and general and administrative expenses).
Above six steps become the target profit basis. It aims to reduce both fixed cost and variable cost on the systematic basis on the monthly mode. Prior year data becomes the basis in both type of the cost. Reduction rate adjustment is done based on the target price. It allows management to decide the future cost reduction strategy.