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The assessee followed the correct method of valuing inventory by excluding recoverable VAT from the cost of purchases and inventory, in compliance with Accounting Standard 2 and the Income Computation and Disclosure Standards. The Assessing Officer erred by adding VAT to the closing stock without making corresponding adjustments to the opening stock and purchases. The Inclusive method was correctly applied by the assessee as per Section 145A, resulting in a nil impact on income. The ITAT relied on the Supreme Court's judgment in CIT v. Indo Nippon Chemicals Co. Ltd, which disallowed adopting different methods for purchases and closing stock valuation. Consequently, the addition made by the AO was incorrect and the assessee's appeal was allowed.
The assessee followed the correct method of valuing inventory by excluding recoverable VAT from the cost of purchases and inventory, in compliance with Accounting Standard 2 and the Income Computation and Disclosure Standards. The Assessing Officer erred by adding VAT to the closing stock without making corresponding adjustments to the opening stock and purchases. The Inclusive method was correctly applied by the assessee as per Section 145A, resulting in a nil impact on income. The ITAT relied on the Supreme Court's judgment in CIT v. Indo Nippon Chemicals Co. Ltd, which disallowed adopting different methods for purchases and closing stock valuation. Consequently, the addition made by the AO was incorrect and the assessee's appeal was allowed.
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