Inventory valuation rules under income tax law upheld as uniform prescription; exclusion of LIFO found constitutionally valid.

Section 145A, read with ICDS II and Notification No. 87/2016, was upheld as a uniform inventory valuation prescription for assessees computing business income. The exclusion of LIFO was not treated as arbitrary or discriminatory because the rule applied equally within the relevant class and was linked to consistency and uniformity in income computation. The challenge under Articles 14, 19(1)(g) and 265 failed, as there is no vested right to insist on one accounting method where Parliament has mandated another, and economic legislation is reviewed with restraint. The constitutional validity of the amended framework was therefore sustained.

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Issues: Whether Section 145A of the Income-tax Act, 1961 read with ICDS II and Notification No. 87/2016 dated 29.09.2016, to the extent they require inventory valuation by FIFO or weighted average cost and exclude LIFO, are unconstitutional as arbitrary, discriminatory, or violative of Articles 14, 19(1)(g) and 265 of the Constitution of India.

Analysis: The prescribed method under ICDS II and the amended statutory framework was held to operate as a uniform rule for assessees whose income is computed under the head "Profits and gains of business or profession". The amendment to Section 145A was treated as a legislative response that supplied a determining principle and removed the basis on which the earlier challenge had succeeded in another context. The exclusion of LIFO was not found to create an unreasonable classification, because the prescription applied alike to all persons within the relevant class. The Court also held that there is no vested right to insist upon one particular method of inventory valuation in preference to a contrary statutory mandate, and that economic legislation is subject to a restrained standard of judicial review. The plea of manifest arbitrariness failed because the prescription was linked to uniformity and consistency in computation of income.

Conclusion: The challenge to the constitutional validity of Section 145A, ICDS II, and Notification No. 87/2016 failed, and the exclusion of LIFO was upheld.

Ratio Decidendi: A statutory prescription fixing a uniform method of inventory valuation for a defined class of assessees is not unconstitutional merely because it departs from a previously accepted accounting practice, if it rests on a rational legislative objective and applies equally within the class.

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