Stock valuation
This query is : Resolved
21 November 2013
which method should be adopted while valued the stock.
how to determine the method which should be adopted by the assessee.Whether it is Avg method or LIFO OR FIFO?
how to determine the method which should be adopted by the assessee.Whether it is Avg method or LIFO OR FIFO?
21 November 2013
Firms often adopt the LIFO approach for
the tax benefits during periods of high
inflation, and studies indicate that firms
with the following characteristics are
more likely to adopt LIFO - rising prices
for raw materials and labor, more
variable inventory growth, an absence
of other tax loss carry forwards, and
large size. When firms switch from FIFO
to LIFO in valuing inventory, there is
likely to be a drop in net income and a
concurrent increase in cash flows
(because of the tax savings). The reverse
will apply when firms switch from LIFO
to FIFO.
the tax benefits during periods of high
inflation, and studies indicate that firms
with the following characteristics are
more likely to adopt LIFO - rising prices
for raw materials and labor, more
variable inventory growth, an absence
of other tax loss carry forwards, and
large size. When firms switch from FIFO
to LIFO in valuing inventory, there is
likely to be a drop in net income and a
concurrent increase in cash flows
(because of the tax savings). The reverse
will apply when firms switch from LIFO
to FIFO.
21 November 2013
Dear Ankita,
You may adopt any of the method. However, since you talking in reference to income tax you need to ensure that you follor 145A. Plus you cannot keep changing the valuation method on your whims and fancies.
one cannot change year after year the method of valuation of the closing stock. This has also been the decision of the Honourable High Court in the case of CIT v. Bharat Commerce and Industries Ltd. 240 ITR 256.
You may adopt any of the method. However, since you talking in reference to income tax you need to ensure that you follor 145A. Plus you cannot keep changing the valuation method on your whims and fancies.
one cannot change year after year the method of valuation of the closing stock. This has also been the decision of the Honourable High Court in the case of CIT v. Bharat Commerce and Industries Ltd. 240 ITR 256.
21 November 2013
ok thanks nikhil kaushik ji ,n one more thing..... Is there any case law in favour of assessee where A.O.wants to change the method of valuation of stock and resulting income are taxable (as per A.O.)
21 November 2013
Dear Ankita,
Please refer to this article. It covers almost everything on stock valuation from tax side.
Please refer to this article. It covers almost everything on stock valuation from tax side.
21 November 2013
Further, you may refer to:
[2002] 125 Taxman 727 (Guj.)
http://www.pwc.in/services/tax/news_alert/2013/pwc_news_alert_13_june_2013_hercules_pigment_industry.pdf
Whirlpool of India Ltd., Vs. Addl. Commissioner of Income ITA No.2071/Del/2008
at
http://www.indiankanoon.org/doc/197485587/
[2002] 125 Taxman 727 (Guj.)
http://www.pwc.in/services/tax/news_alert/2013/pwc_news_alert_13_june_2013_hercules_pigment_industry.pdf
Whirlpool of India Ltd., Vs. Addl. Commissioner of Income ITA No.2071/Del/2008
at
http://www.indiankanoon.org/doc/197485587/
21 November 2013
Let me clear you actually in my case assessee received the notice from the dept that you should follow the avg method instead of using cost method for valuation of stock.
21 November 2013
Dear what I am saying is:
1. As long as you are following a valuation method consistently over years, it cannot be questioned.
2. If you change the method for valid reasons, AO cannot disregard it.
3. AO has no power to modify/object or prescribe prescribe a particular method as long as you are consistently following a method without any objection from AO in earlier years.
1. As long as you are following a valuation method consistently over years, it cannot be questioned.
2. If you change the method for valid reasons, AO cannot disregard it.
3. AO has no power to modify/object or prescribe prescribe a particular method as long as you are consistently following a method without any objection from AO in earlier years.
21 November 2013
But in my case A.O.send the notice for change the method of valuation and make a demand on resulting profit.
21 November 2013
can you share the content of the said notice?
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