By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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36 (2008) 26 SOT 141 (Mum.)
Dy. CIT v. Beck India Ltd.
ITA Nos. 383 and 483 (Mum.) of 2005
A.Y. : 2001-02. Dated : 11-9-2008
S. 145A of the Income-tax Act, 1961 — If on account of
application of S. 145A, a change per se is forced upon assessee in valuation of
its closing stock, a corresponding adjustment in opening stock has to be carried
out for consistency.
For the relevant assessment year, the Assessing Officer held
that the assessee was bound to follow the decision of the High Court in
Melmould Corpn. v. CIT, (1993) 202 ITR 789/71 Taxman 47 (Bom.) and that if a
change in method of accounting results in change in value of closing stock, no
corresponding adjustment would be required in opening stock, since such a change
would have the effect of disturbing the accounts leading to a chain reaction,
and, therefore, he added back MODVAT credit balance to closing stock of the
assessee. The CIT(A) directed the Assessing Officer to make corresponding
adjustments in the opening stock.
The Tribunal, relying on the decision in the case of CIT
v. Mahavir Aluminium Ltd., (2008) 297 ITR 77/ 168 Taxman 27 (Delhi), upheld
the CIT(A)’s order. The Tribunal noted as under :
1. S. 145A mentions ‘inventory’ and limiting it only to
‘closing inventory’, disregarding the opening inventory, would be not in
accordance with the plain meaning of the term ‘inventory’ used in the Section.
Inventory will necessarily include within its fold both opening as well as
closing.
2. In Melmould Corpn.’s case (supra), the assessee
had made a change in the method of valuation, which was not thrust upon the
assessee, but voluntarily selected by it. Such a change suo motu done
would definitely be different from one, which is statutory inflicted, where an
assessee per se is forced to make an adjustment to value of its
inventory.
3. However, when on account of application of S. 145A a
change per se is forced upon the assessee in the valuation of its
closing stock, a corresponding adjustment in opening stock has to be carried
out for consistency.
