TaxTMI 
TaxTMI 
2007 (3) TMI 411
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....in accordance with Accounting Standard-2 issued by the Institute of Chartered Accountants of India. 3. The assessee, a private limited company, was engaged in the business of manufacturing of multi layer and mono layer films and was also a C&F Agent of GAIL. The Assessing Officer noticed that during the accounting period relevant to assessment year 2002-03, the assessee had changed the method of valuation of closing stock of finished goods and work-in-progress from 'net realizable value' to 'lower of cost or net realizable value'. This change had resulted in net profit being decreased by Rs. 1,30,087. In reply to Assessing Officer's query, the assessee explained that it had changed its accounting policy of valuation of stock to follow the ....
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....e appellant had changed the method of accounting following the guidelines issued by ICAI, for the purposes of income-tax, the provisions of section 145 will have to be followed. For ascertaining the true profits of a year, both the opening stock and closing stock have to be valued by the same method. In the case of the appellant, the opening stock has been valued at the net realizable value but the closing stock has been valued at cost or net realizable value whichever is lower. Either the appellant adopts the revised method for both the opening stock and closing stocks or else he has to follow the old system, where again opening and closing stocks are valued by the same method." 4. The ld. Counsel submitted that in view of insertion of se....
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....fficer adopts after invoking the provisions of section 145, it has to be consistent with the accepted principles of accountancy. 6. We have considered the rival submissions and have perused the record of the case. Section 210 of the Companies Act requires the Board of Directors of a company to place at every Annual General Meeting a balance sheet as at the end of the accounting period of the company and a profit & loss account for that period. Section 211 of the Companies Act deals with form and contents of balance sheet and profit & loss account. The basic requirement of this section is that the balance sheet of a company shall give a true and fair view of the state of affairs of the company at the end of the financial year and every prof....
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....finished goods and work-in-progress at 'lower of cost or net realizable value' instead of valuing at 'net realizable value' as in earlier years. Since the change in the method of accounting had been made on account of statutory requirements, therefore, it cannot be branded as a mala fide change in the method of valuation of closing stock. 7. Now coming to the objection of lower Revenue authorities that valuation of opening stock also should have been done on the same basis on which closing stock was valued. This objection is not tenable in law. Before considering the issue any further, it has to be kept in mind that valuation of closing stock is not a source of profit to the concern but has to be made in order to determine the true profits....