Inventory valuation under Accounting Standard 2 excludes certain overheads; disputed expenses were sent back for fresh adjudication.

Expenditure on advertisement, legal and professional fees, and site administrative expenses was disputed on the question whether it had to be capitalized to inventory under Accounting Standard 2 read with section 145A of the Income-tax Act, 1961. The stated position was that inventory cost excludes administrative overheads not contributing to inventories reaching their present location and condition, as well as selling and distribution costs; the appellate authority had not examined those clauses or given a speaking finding, so the issue was set aside and restored for fresh adjudication after proper consideration and hearing.

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Issues: Whether the expenditure on advertisement, legal and professional fees, and site administrative expenses was required to be capitalized to inventory under Accounting Standard 2 read with section 145A of the Income-tax Act, 1961.

Analysis: The relevant accounting standard excludes from inventory cost administrative overheads that do not contribute to bringing inventories to their present location and condition, as well as selling and distribution costs. The claim was that the disputed expenditure fell within those excluded categories. The appellate authority had noted the assessee's contentions but did not examine or decide the applicability of the relevant clauses of the accounting standard and disposed of the matter in a cryptic manner without a speaking finding.

Conclusion: The order on this issue was set aside and the matter was restored for fresh adjudication after examining the applicability of the relevant clauses and after giving an adequate opportunity of hearing.

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