Case Law Details
ACIT Vs Thiagarajar Mills Ltd. (ITAT Chennai)
The issue under consideration is whether the change in method of valuation of inventory is allowed if it is based on AS 2 as prescribed by ICAI?
In the instant case, the assessee was earlier following the market value method for valuing finished goods consistently in preceding years which was accepted by Revenue. The assessee changed method of valuing finished goods in the previous year relevant to impugned assessment year from ‘market value’ method to ‘cost or market value which ever is lower’ method.
ITAT states that, undisputedly method of valuing finished goods at ‘cost or market value whichever is lower’ is as per AS prescribed by ICAI and thus it could be said that change in method of valuing finished stock was bonafide and the assessee has rightly applied the said changed method to closing stock of finished goods. This will also satisfy the mandate of Section 145A as was existing in the statute for relevant period. Further they states that, if the assessee has to change method of valuing inventory in compliance with AS-2 issued by ICAI, then changed method of valuation has to be applied to all the components of inventory as prescribed under AS-2 and the assessee cannot be allowed to pick and chose method of valuing inventory to apply method to some components of inventory and leaving out other components of inventory. In that scenario, it will lose the character of being a change of method lacking bonafide and genuineness warranting change of method of valuation of inventory. So, also for limited verification by the AO, ITAT are remitting matter back to the file of the AO , wherein the assessee is directed to justify as to why it is adopting different method for valuing different components of inventories and whether the said differential methods for valuing different components of inventory are consistent with AS prescribed by ICAI. The assessee is directed to give justification before AO for adopting different method of valuing different components of inventory and to prove that these differential methods are consistent with AS-2 prescribed by ICAI and hence accordingly, there was no intent to reduce tax by applying new method of valuing finished goods . Accordingly the appeal filed by the revenue allowed.
FULL TEXT OF THE ITAT JUDGEMENT
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