Valuation of stock

Last updated: 07 June 2008

Court :

Brief :
To give effect to section 145A, if there is a change in the closing stock corresponding change in opening stock also to be made

Citation :
CIT vs. Mahavir Aluminium Ltd. [2008] 297 ITR 77 (Del)

The assessee before the Hon’ble Delhi High Court was a limited company. While finalizing the accounts for the previous year ending on 31st March, 1999, the assessee had charged modvat credit on certain inputs in its closing stock. While doing so the assessee made an adjustment, in the opening stock as on 1st April, 1998. The assessing officer rejected the claim of the assessee and observed that section 145A of the Act did not permit the assessee to make a change in the valuation of the opening stock although it permitted a change in the closing stock. On appeal the first appellate authority partially allowed the appeal of the assessee but did not admit the claim of the assessee. Being aggrieved by the above order of the CIT(A), the assessee preferred an appeal to the Income-tax Appellate Tribunal. Hon’ble Tribunal allowed the appeal of the assessee by observing that the adjustment on account of modvat credit and excise duty can be made in the opening stock also. Being aggrieved by the Order of the Appellate Tribunal, the revenue filed an appeal before the Hon’ble Delhi High Court under section 260A of the Act. Hon’ble High Court upheld the order of the Appellate Tribunal and held that if any adjustment was required to be made by a statute, effect should be given to it irrespective of any consequences on the computation of income for tax purposes. Section 145A begins with a non obstante clause and therefore to give effect to section 145A, if there is a change in the closing stock as on 31-3-1999 there must necessarily be a corresponding adjustment made in the opening stock as on 1-4-1998.