Case Law Details
P. A. Jose Vs Union of India (Kerala High Court)
In the legal case of P. A. Jose Vs Union of India, as adjudicated by the Kerala High Court, the central issue revolved around the valuation methodology for determining the opening and closing stock of a business entity for the Assessment Year 2017-2018. The petitioners in this case had been consistently using the Last In First Out (LIFO) method to value their opening and closing stock, which had been accepted by the Revenue authorities until 1st April 2017.
The principle at the heart of the matter is the consistency in valuation methodology for both opening and closing stock. It’s a well-established legal doctrine that the method used to value closing stock should be the same as that used for opening stock. This principle finds support in various legal precedents such as the cases of Ramswarup Bengalimal, K.G Khosla, Doom Dooma India Ltd, and CIT vs. Mahavir Aluminum Ltd. These cases have all emphasized the importance of maintaining consistency in valuation methods for stock.
The application of the First In First Out (FIFO) method from 1st April 2017 led to a significant increase in the petitioner’s taxable income, to the tune of Rs. 51.07 Crores, without any corresponding increase in real income. This abrupt change in valuation method, mandated by the retrospective amendment of Section 145A by the Finance Act, 2018, had a substantial adverse impact on the petitioner’s financial standing.
However, the retrospective amendment of Section 145A was intended to provide relief to those assesses who had already adopted FIFO for stock valuation in the Assessment Year 2017-18. The objective was to prevent their returns from being declared incorrect or invalid. It was not intended to force a change in valuation method for assesses who had consistently used LIFO, like the petitioners in this case. Requiring such assesses to suddenly adopt FIFO would result in an unjust and unexpected burden.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Author Bio
