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?
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.
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
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.
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.
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