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2013 (4) TMI 602 - AT - Income TaxMethod of accounting - Change in method valuation of closing stock – Rejection of the same subsequent to which additions were made in the income of the assessee - As per revenue AS-II, issued by the ICAI, is not a valid reason for the change adopted by the assessee and it is not for the assessee's legitimate business needs. Also, once the Companies Act mandates the following and compliance of the Accounting Standards issued by the ICAI, the CIT (A)'s observation that the ICAI Guidelines do not override the Income- tax Act, causes no detriment to the case of the assessee and, as such, the Ld. CIT (A) clearly erred in upholding the addition made by the A.O. Held that - The Companies Act, in Section 211, prescribes that the assessee shall follow the Accounting Standards issued by the ICAI in preparing its financial statements and AS-II, relevant to the year under consideration, the same has been conformed by the assessee by way of change in its method of valuation of closing stock, it cannot be but said that the action of the assessee in changing its method of valuation of closing stock was bona fide. In Jackson Engineers (P) Ltd. vs. ITO [1989 (2) TMI 159], Hero Honda Motors Ltd. vs. JCIT [2005 (5) TMI 265], Jaipur Taj Enterprises Ltd. vs. ITO [1991 (9) TMI 121] and DCIT vs. Venus Wire Industries Ltd. [2004 (9) TMI 569], it has been repeatedly held that if there is a bona fide change in the method of accounting which is consistently followed, no adverse inference can be drawn against the assessee. Thus, change in method of valuation of closing stock in conformity with AS-II has been held to be a bona fide change. Appeal filed by the assessee is allowed.
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