TaxTMI 
TaxTMI 
2006 (4) TMI 360
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....tion made by the Assessing Officer for adjustment of Excise Duty to the opening stock as per the provisions of section 145A of the Act." 2. The dispute in this appeal arose on account of a newly inserted provisions of section 145A of the Act. Section 145A was inserted by the Finance (No. 2) Act, 1998 and effective from the assessment year 1999-2000, which reads as under: "Notwithstanding anything to the contrary contained in section 145, the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be- (a )in accordance with the method of accounting regularly employed by the assessee; and (b)further adjusted to in....
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....eason that the deviation in the value of opening stock by inclusion of excise duty will result in retrospective change reaction to disturb the profit figure and profit and loss account of the earlier assessment years which have been already finalized. The CIT(A). however, accepted the claim of the assessee by observing as under : "I have gone through the submissions made by the appellant. It is observed that the appellant-company has computed the impact on the valuation of stock in accordance with section 145A of the Income-tax Act which was inserted by Finance Act, 1998 with effect from 1-4-1999 and hence applicable from the assessment year 1999-2000. As per the provisions of this section, the valuation of purchase and sale of goods and....
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.... the previous year by substituting with the element of excise duty which, according to him, is impermissible. The learned counsel for the assessee, on the other hand, has filed copies of the annual report to show that the assessee has not varied the opening stock brought forward from the earlier year's closing stock. But the effect of the variation of the opening stock as a result of the legislative amendment in section 145A has been strictly in accordance with the decision of the Privy Council in the case of CIT v. Ahmedabad New Cotton Mills Co. Ltd. AIR 1930 PC 56 as also the decision of the Hon'ble Supreme Court in Chairup Sampatram v. CIT [1953] 24 ITR 481. The learned counsel for the assessee has also filed copies of the CBDT Circular ....
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....sales as well as inventory shall always include the element of tax, duty, cess or fee paid. Therefore, in the year when the provisions are implemented for the first time, there is bound to be an impact in that year, whereas in the subsequent year whatever valuation is put to the closing stock will surface as opening stock and thereby a debit to that year's profit and loss account. In other words, the changed method will have neutral tax effect over the years. Only the method of valuation of the closing stock gets switched over from exclusive method to inclusive method. If the assessee is allowed to adjust the opening stock of the year in question then it would amount to distortion of the value of the closing stock of the earlier year. Unles....