TaxTMI 
TaxTMI 
2024 (11) TMI 171
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....4/2021, 29846/2021, 30448/2021, 30354/2019, 30340/2019, 30373/2019 and 32237/2019. The writ petitioners in the aforesaid writ petitions are the appellants before us. 2. The challenge in the writ petitions was to para 16 of Income Computation and Disclosure Standards [ICDS] II and the Notification 87/2016 dated 29.09.2016 to the extent they prescribed that the cost of inventories shall be computed by using the First In First Out (FIFO) or Weighted Average Cost method, to the exclusion of other methods relating to valuation of inventory, such as the Last In First Out (LIFO) method, while computing income under the head of Profits and Gains of Business or Profession under the Income Tax Act, 1961 [hereinafter referred to as the "I.T. Act"]. It was contended that the said paragraph of ICDS II and the Notification dated 29.09.2016, to the extent impugned, were violative of Articles 14, 19 (1)(g) and 265 of the Constitution of India and hence unconstitutional and legally unenforceable. There was also a prayer to declare as unconstitutional Section 145A of the IT Act, as introduced by the Finance Act, 2018 w.r.e.f. 01.04.2017. 3. The facts necessary for a disposal of these appeals have ....
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....on dated 29.09.2016. However, he found force in the contention of the appellants as regards retrospective operation of Section 145A and held that the stipulation under Clause 16 of ICDS II for adoption of FIFO and the Weighted Average Cost for valuation of stock/inventory cannot be applied for the assessment year 2017-18 for the valuation of the opening stock, as the opening and closing stock of the year is to be valued by applying the same methodology. 5. In the appeals before us, the contentions of the learned Senior Counsel Sri.Ajay Vohra and Sri.A.Kumar, assisted by Smt. G.Mini, for the appellants, briefly stated are as follows: ● The valuation of closing stock is an integral aspect of a method of accounting, and so long as the LIFO method of valuation of closing stock is recognised by the prevailing accounting standards, an assessee has to be permitted to follow it. The provisions of Section 145A, read with Notification dated 29.09.2016 notifying the ICDS, if given effect to, would nullify the judgments of the Supreme Court and the High Courts and hence ought to be struck down as unconstitutional. Reliance is placed on the decisions in Investment Ltd. v. Commissioner o....
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....e mandatory imposition of FIFO and Weighted Average Cost methods would bring to tax notional/hypothetical income in the hands of the appellants, it would also lead to an arbitrary classification causing unreasonable discrimination to the appellants and create disharmony amongst assessees. Reliance is placed on Godhra Electricity Co. Ltd., Ahmedabad v. Commissioner of Income Tax, Gujarat-II, Ahmedabad - [(1997) 4 SCC 530]; Commissioner of Income-Tax, Bombay City I v. Messrs. Shoorji Vallabhdas and Co. - [(1962) 46 ITR 144 (SC)]; Commissioner of Income Tax, West Bengal II v. Birla Gwalior (P) Ltd. - [(1974) 3 SCC 196]; Poona Electric Supply Co. Ltd. v. Commissioner of Income-Tax, Bombay City I - [(1965) 57 ITR 521]; R.B. Jodha Mal Kuthiala v. Commissioner of Income Tax, Punjab, Jammu & Kashmir, Himachal Pradesh & Patiala - [(1971) 3 SCC 369]; State Bank of Travancore v. Commissioner of Income Tax, Kerala - [(1986) 2 SCC 11]. 6. Per Contra, the submission of Sri. Jose Joseph, the learned Standing Counsel for the Income Tax Department, briefly stated is as follows: ● While it may be a fact that prior to the introduction of the new Section 145A of the IT Act with effect from 01.....
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....ed by the appellants on the judgment of the Delhi High Court in The Chamber of Tax Consultants & Anr. v. Union of India & Ors. - [(2018) 400 ITR 178 (Del)] to point out that the court in that case had re-iterated that accounting standards consistently followed by an assessee for many years has to be given due weightage while computing the income of an assessee for the purposes of completing assessments under the IT Act; that the court had in that case struck down the notification dated 29.09.2016 after holding that Section 145(2) of the IT Act had to be read down to restrict the power of the Central Government to notify ICDS that do not seek to override binding judicial precedents or provisions of the Act. We have gone through the said decision and find that it was rendered in the context of the unamended Section 145A of the IT Act that enabled an assessee to value his inventory of goods in accordance with the method of accounting regularly employed by him. However, Section 145A of the Act was since amended by Finance Act 2018, w.r.e.f 01.04.2017 to bring in new provisions that effectively cured the defect pointed out by the Delhi High Court in The Chamber of Tax Consultants (supra....
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.... Commissioner of Income-Tax, West Bengal - [1953 (24) ITR 481 (SC)]. The adoption of any particular method of stock valuation is towards ensuring that it reflects the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition. The assumption underlying the FIFO method is that the oldest stock is used or issued first or that sales are made in the order in which the goods are purchased or produced. If there are several lots of goods at different prices, they are regarded as being exhausted in the order of purchase. On a rising market this would write off the lower priced lots first, and on a falling market the higher priced lots would go first. The LIFO method, on the other hand, assumes that the items of stock purchased last are the first to be issued or sold and thus the stock remaining is valued at the cost of the earlier purchases. Under the Weighted Average Cost method, the cost of each item is determined from the weighted average cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average is calculated on a periodic basis or as each addit....
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....rimination, it is trite that there is no infringement of the equal protection rule if the law deals alike with all of a certain class, as the legislature has the right of classifying persons and placing those whose conditions are substantially similar under the same rule of law, while applying different rules to persons differently situated. It is only if the classification is unreasonable and bears no rational relation to the object sought to be achieved by the legislative measure that it will be struck down as discriminatory and unconstitutional [Kerala Hotel & Restaurant Association & Others v. State of Kerala & Others - [(1990) 2 SCC 502]; Tata Motors Ltd. v. State of Maharashtra & Others - [(2004) 5 SCC 783]; Pattali Makkal Katchi v. A. Mayilerumperumal & Ors. - [(2023) 7 SCC 481]]. On the facts of the instant appeals, since the prescription in ICDS II, with regard to the method of valuation of inventory/stock, is applicable to all assessees whose income is chargeable to tax under the head "Profits and gains of business or profession", we do not find any unreasonable classification as having been effected among persons who are similarly situated. Further, the prescription unde....