TMI Blog2012 (6) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... EENA, JJ. Sanjay Kalra for the Appellant. Ms. Y. Kakkar for the Respondent. ORDER B.C. Meena, Accountant Member This appeal filed by the assessee emanates from the order of CIT (Appeals)-VII, New Delhi dated 14.06.2011 for the assessment year 2008-09. 2. The assessee company is engaged in the business of manufacture and sale of writing instruments. During the relevant assessment year, the assessee has changed the method of valuation of stock. Due to the change in the method of valuation of stock, the income of the assessee has been returned lesser by Rs. 11,60,494/-. The Assessing Officer asked the explanation of the assessee and found it unacceptable and held that according to the provisions of section 145A of the Income-tax Act, 1961, for valuation of inventory, the method to be adopted is the method of accounting regularly employed by the assessee. The assessee company had changed its method of valuation of inventory which is not allowed under the provisions of section 145A and he made an upward adjustment in the income of the assessee of Rs.11,60,494/-. 2-3. The assessee filed the appeal on this issue before the CIT(A) and the CIT(A) has confirmed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of and on. It has to be bona fide and frequently followed. Assessee had shifted to new EPR Package : SAP for improving the working in more scientific method. In a sense, the assessee has changed its method of valuation of finished goods from historical (Direct) cost to weighted moving average basis as it installed a better or more scientific ERP package of accounting known as SAP which is more precise, accurate and scientific . SAP follows Weighted Moving Average Basis of valuation of inventory than Historical Cost (Direct Cost) or FIFO method. Both the cost are prescribed method for valuation of stock, as held in CIT v. B . Amrithalakshmi [2007] 163 Taxman 467 (Mad.). He further pleaded that both Direct Cost (FIFO) or weighted moving average method are recognized in Accounting Standard 2 (AS-2) prescribed by ICAI and accepted by Income-tax Act in Section 145 in Method of Accounting. AS-2 in para 16 states as under :- "16. The cost of inventories, other than those dealt with in paragraph 14, should be assigned by using the first-in, first-out (FIFO), or weighted average cost formula. The formula used should reflect the fairest possible approximation to the cost incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that in respect of the basis adopted for valuation in the earlier years, the assessee has the option to change the method of valuation of the closing stock at cost or market price, whichever is lower, at any time provided the change was bonafide and followed regularly thereafter. For this, he relied on the following case laws :- ( i ) CIT v. Corpn. Bank Ltd. [1988] 174 ITR 616, 620/41 Taxman 161 (Kar); ( ii ) CIT v. Dalmia Cement (Bharat) Ltd. - [1995] 215 ITR 441, 445/82 Taxman 255 (Delhi), Pages 89-91. Once having so changed the method of accounting, if the assessee continued with the changed method, it becomes his regularly employed method within the meaning of section 145 (1) and the Assessing Officer is bound to base his assessment on the changed method provided that income can properly be deducted from such method. If, however, the changed method is not followed regularly by the assessee, the taxing authority cannot fall back upon the earlier method of accounting. This is so because in such a case it cannot be said that the assessee had followed the earlier method regularly in view of the intermediary changed method of accounting. Such a case will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 180 Taxman 35 (Delhi). He finally pleaded that in the assessee's case, there was no change of method of closing stock. The assessee has always followed the method of valuation which is known as 'Cost or Net Realizable Value wherever is lower'. The assessee was valuing its inventory at cost by FIFO method earlier and now the assessee is adopting the other method of arriving at cost by method of weighted moving average cost method. Therefore, there was no change in the method of assessee. He also relied on the decision of ITAT, Mumbai Bench in Sahara India Mass Communication Ltd. v. Asstt. CIT [IT Appeal No.522 (Mum.) of 2006 dated 28-4-2011] for the proposition that change in method of stock valuation is permitted provided it is regularly followed. Finally, he pleaded that the decision of ITAT, Delhi Bench in the case of Ajanta Raj Proteins Ltd . v. Dy. CIT [2009] 124 TTJ 914/32 SOT 517 is not applicable to the assessee's case as in that case Tribunal dealt with the change of method of accounting of closing stock which was earlier valued at cost and subsequently valued at net realizable value. Hence, in that case, the method was changed from 'At cost' to 'Net realizable val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of determining the income chargeable under the head "Profits and gains of business or profession" shall be - ( i ) in accordance with the method of accounting regularly employed by the assessee; and ( ii ) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation.-For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment. ( b ) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received." Section 145A was introduced by the Finance (No.2) Act, 1998, w.e.f. 1.4.1999 which has been subsequently amended by Finance (No.2) Act, 2009 w.e.f. 1.4.2010. Learned AR pleaded that the assessee can change the method of valuation but if it reduces the income then the assessee has to compensate for the same in the year in which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 145 could be applied. In case of such contradictions or contrary situations, the provisions of section 145 A will be applied. Thus, the provisions of section 145A will prevail over the provisions of section 145. For the determination of income chargeable under the head "Profits and gains of business or profession", the Act requires assessee to value the stock in accordance with the method of accounting regularly employed by the assessee. Once the method has been chosen it should be employed regularly by the assessee and assessee may not be permitted to change it in the subsequent years. The assessee was regularly employing the method of valuation for valuing the stock at cost or net realizable value whichever is less. By shifting to a new ERP package, for example, SAP 2 worked out the value of the stock at cost, any reduction in the valuation of the stock is not permitted in law. The assessee's claim that the regularly employed method means change method should be adopted in subsequent years is also untenable. The regular employed method by the assessee must have been followed in the past years which is continued to be followed in the subsequent years. Considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
