An escalation claim to one of its customers was made but was not accounted as income.
Clause 16 of Form 3CD:
Under clause 16 of Form 3CD:-
If any escalation claim accepted during the previous year and such amount is not credited to the P&L A/c, the fact should be reported by the tax auditor.
However the system of accounting followed shall also be considered.
If assessee is following cash basis – acceptance of claims during the relevant previous year without actual receipt has no significance hence it should be clearly brought out
When to consider a claim as an accepted claim:
Mere making claims by the assessee or claims under negotiations cannot constitute accepted claims.
-Escalation claims should arise pursuant to a contract (including contracts entered into in earlier years), if so permitted by the contract.
-Only those claims to which the other party has signified unconditional acceptance could constitute accepted claims.
Hence a decision whether to report or not, can be taken only after ascertaining the relevant factors as outlined above