LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Valuation of closing stock

Prasanna (Articled Assistant) (119 Points)

21 June 2010

Situation: In trading & Profit & Loss Account Input Vat Credit/ Vat paid & output vat is shown separately on respective side and excess of input vat credit on output vat collected is shown as vat refundable.

Question: Whether vat attributable to the cl.stock should be included in the valuation of closing stock as per income tax act?

Reply
Follow
Share

9 Replies

DT Fundas - Tarun rustagi ( Author) (1150 Points)
Replied 21 June 2010

no closing stock does not include vat amount. reason is we can claim credit of it.

SIVASIVA (FCA, Future CA) (4935 Points)
Replied 21 June 2010

i think yes.

Rahi Naik (student) (180 Points)
Replied 21 June 2010

As per sec 145 of It act valuation of stock base on Inclusive method while as per As valuation may be inclusive or exclusive....as per it act clo.stock includ vat amt as whole...while as per sec 43A it deducted only if company pay vat payable amt before due date of return 30 sep or 31 july..thats y only that sec 145 here

2 Like

DT Fundas - Tarun rustagi ( Author) (1150 Points)
Replied 21 June 2010

sorry for posting a wrong reply

Tejay (Practice) (58 Points)
Replied 22 June 2010

In my understanding, As per AS 2 we can include in the valuation of closing stock only those cost which are responsible for bringing the stock into the current location.The duties & taxes which are paid at the time of procurement but are bound to get reveresed say on account of tax credit (as in case of vat), the same is not to be shown in the cost of inventories.

Now turning towards Income tax part, Section 145 does not prescribe any method for valuation of stock. However,the income tax authorities are need to be satisfied that the inclusion of the said taxes as vat & excise are not in anyway affecting the profitability of the said assessee.i.e the GP ratio.Terefore , it is just the matter of proving the authorities that we add back the duties & taxes in the value of closing stock. However, the same should bre then applied for the other trading items such as purchases , opening stock as well in order to understand the effect on the profitability if any.

1 Like

manish (Article Assitant) (358 Points)
Replied 22 June 2010

Thanx for giving me the true statement.

NARENDER PAWAR (CA final Student) (337 Points)
Replied 22 June 2010

no vat is not requried to be include to valuation of closing stock

Amir (Learner) (4016 Points)
Replied 22 June 2010

HI friends,

Pls go through the Guidance Note on "Tax Audit" issued by the ICAI (available on the ICAI's website) for practical questions on this issue.

The net effect will be "Nil" but yes, adjustment is required in terms of Sec 145A.

ashish (assitant) (28 Points)
Replied 22 June 2010

ur question is regarding tax prospective hence as per sec 145 of income tax act , according to it inclusivemethod is precribed.therfore we add this to closing stock.refer sec 145 A of income tax act