Income tax computation process
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
06 September 2017
Please let me know that whether 145A reflection is mandatory for income tax computation i.e if any profit arising then it must taken in to consideration for computation of Income Tax for a PVt.Ltd Co.
Please furnish also case law if possible to substantiate your answer.
Please let me know that whether 145A reflection is mandatory for income tax computation i.e if any profit arising then it must taken in to consideration for computation of Income Tax for a PVt.Ltd Co.
Please furnish also case law if possible to substantiate your answer.
06 September 2017
Yes, 145A adjustment has to be reflected in the income tax computation. No need of case law. Act, ICAI guidance note and ICDS-2 substantiate this view.
Querist : Anonymous
Querist :
Anonymous
(Querist)
13 September 2017
As per 145A "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."
please let me know what is the definition of incurred. if we paid statutory liability after adjustment of input then the amount adjusted against input will not consider as incurred by the assessee or it can taken as amount paid or incurred.
As per 145A "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."
please let me know what is the definition of incurred. if we paid statutory liability after adjustment of input then the amount adjusted against input will not consider as incurred by the assessee or it can taken as amount paid or incurred.
31 July 2024
### **Income Tax Computation and Section 145A**
**1. Reflection of Section 145A for Income Tax Computation:**
**Section 145A of the Income Tax Act, 1961:**
- **Section 145A:** This section mandates that the valuation of inventory and other items should include all taxes, duties, cesses, or fees (by whatever name called) paid or incurred by the assessee to bring the goods to their location and condition as of the date of valuation. This is intended to ensure that the financial statements reflect the true cost of goods by including these additional costs in the valuation.
- **Impact on Income Tax Computation:** For a Private Limited Company, the inclusion of taxes, duties, and other expenses as per Section 145A is mandatory. This means that when computing taxable income, the company must ensure that the valuation of its inventory and other related items includes all such costs, and they must be factored into the computation of income for tax purposes.
**2. Definition of "Incurred":**
- **"Incurred":** The term "incurred" refers to the liability or expense that has actually been borne by the assessee. It implies that the expense or liability has been recognized as an actual cost rather than just a provision or an estimated amount.
- **Statutory Liability and Input Tax Adjustment:**
- If a statutory liability (like tax or duty) is adjusted against input credits, the amount that is actually paid or settled is considered incurred. For instance, if a company adjusts its input tax credit and pays the remaining amount of statutory liability, the amount actually paid is considered "incurred" under Section 145A.
- The adjustment of input tax credits does not negate the fact that the statutory liability was incurred. The net effect of these adjustments should be included in the valuation of inventory and computation of taxable income.
**3. Case Law:**
**Case Law Reference:**
- **CIT vs. Indo Rama Synthetics (India) Ltd. (2009) 308 ITR 545 (SC):**
- The Supreme Court in this case discussed the applicability of Section 145A, emphasizing the need to include taxes, duties, and cesses in the valuation of closing stock. This ensures that the inventory is valued correctly and reflects the true cost including all relevant expenses.
- **Extract from the case:**
- The Supreme Court stated that the inclusion of taxes, duties, and other fees as required under Section 145A is mandatory. The objective is to provide a true and fair view of the cost of inventory, which directly impacts the profit and loss computation.
### **Summary:**
- **Mandatory Inclusion:** Yes, Section 145A mandates the inclusion of taxes, duties, cesses, and fees in the valuation of inventory for income tax computation. This inclusion ensures accurate reflection of the true cost of goods and proper income computation.
- **Definition of "Incurred":** The term "incurred" means that the cost or liability has actually been borne or paid by the assessee. Adjustments against input credits do not alter the fact that the liability was incurred.
- **Case Law:** The case of **CIT vs. Indo Rama Synthetics (India) Ltd.** supports the requirement to include such expenses in the valuation of inventory and computation of income.
Ensure compliance with Section 145A for accurate tax reporting and consult with a tax advisor for detailed guidance tailored to your specific situation.
**1. Reflection of Section 145A for Income Tax Computation:**
**Section 145A of the Income Tax Act, 1961:**
- **Section 145A:** This section mandates that the valuation of inventory and other items should include all taxes, duties, cesses, or fees (by whatever name called) paid or incurred by the assessee to bring the goods to their location and condition as of the date of valuation. This is intended to ensure that the financial statements reflect the true cost of goods by including these additional costs in the valuation.
- **Impact on Income Tax Computation:** For a Private Limited Company, the inclusion of taxes, duties, and other expenses as per Section 145A is mandatory. This means that when computing taxable income, the company must ensure that the valuation of its inventory and other related items includes all such costs, and they must be factored into the computation of income for tax purposes.
**2. Definition of "Incurred":**
- **"Incurred":** The term "incurred" refers to the liability or expense that has actually been borne by the assessee. It implies that the expense or liability has been recognized as an actual cost rather than just a provision or an estimated amount.
- **Statutory Liability and Input Tax Adjustment:**
- If a statutory liability (like tax or duty) is adjusted against input credits, the amount that is actually paid or settled is considered incurred. For instance, if a company adjusts its input tax credit and pays the remaining amount of statutory liability, the amount actually paid is considered "incurred" under Section 145A.
- The adjustment of input tax credits does not negate the fact that the statutory liability was incurred. The net effect of these adjustments should be included in the valuation of inventory and computation of taxable income.
**3. Case Law:**
**Case Law Reference:**
- **CIT vs. Indo Rama Synthetics (India) Ltd. (2009) 308 ITR 545 (SC):**
- The Supreme Court in this case discussed the applicability of Section 145A, emphasizing the need to include taxes, duties, and cesses in the valuation of closing stock. This ensures that the inventory is valued correctly and reflects the true cost including all relevant expenses.
- **Extract from the case:**
- The Supreme Court stated that the inclusion of taxes, duties, and other fees as required under Section 145A is mandatory. The objective is to provide a true and fair view of the cost of inventory, which directly impacts the profit and loss computation.
### **Summary:**
- **Mandatory Inclusion:** Yes, Section 145A mandates the inclusion of taxes, duties, cesses, and fees in the valuation of inventory for income tax computation. This inclusion ensures accurate reflection of the true cost of goods and proper income computation.
- **Definition of "Incurred":** The term "incurred" means that the cost or liability has actually been borne or paid by the assessee. Adjustments against input credits do not alter the fact that the liability was incurred.
- **Case Law:** The case of **CIT vs. Indo Rama Synthetics (India) Ltd.** supports the requirement to include such expenses in the valuation of inventory and computation of income.
Ensure compliance with Section 145A for accurate tax reporting and consult with a tax advisor for detailed guidance tailored to your specific situation.
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