Value of closing stock added to income in last year to be form part of the opening stock of next year: ITAT

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Value of closing stock added to income in last year to be form part of the opening stock of next year: ITAT

 

 

There are various addition and adjustment which is carrying out during the assessment proceeding.

 

Often, the adjustment done in one year has the implication in the another year. In such cases, the taxation in one particular year may result in adjustment in another year.

 

 

This may also happen when it comes to the valuation of the inventory.

 

The question arises as to whether, the closing inventory is valued at a higher figure during the course of the assessment proceeding by the AO, then whether such higher figure would be relevant for the next year profitability working.

 

 

This was the issue involved in the case of Gogga Gurusanthiah & Bros.

[2019] 108 taxmann.com 600 (Bangalore – Trib). The case was pertaining to the  Method of accounting with reagard to the Valuation of stock for the Assessment year 2008-09.

 

 

Section 145 of the Income Tax Act- 1961reads as under:

 

Method of accounting.

145. (1) Income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.

(2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income.

(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144.

 

 

 

 

Question before ITAT was whether assessee was entitled to carry forward and set off value of closing stock which was added back to assessee’s income for assessment year 2007-08 in subsequent assessment year 2008-09 – Held, yes

 

 

 

ITAT held as under:

 

1.    Assessee was entitled to carry forward and set off value of closing stock which was added back to assessee’s income for assessment year 2007-08 in subsequent assessment year 2008-09.

 

2.    ITAT analysed the provision of Section 145 of the Income-tax Act, 1961.

 

 

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