Question And Answer
Subject: Section 145A(ii) of I.Tax Act 1961
Querist: CA Arun Kumar Arora
Answered by:
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Date: November 30, 2021
Query asked by CA Arun Kumar Arora

Section 145A(ii) requires  certain adjustments to be made in valuation of Purchase and Sale of Goods and Services and of Inventory for computing Taxable Business Income of a Assessee who is following Exclusive Method of Accounting.

Query is:-Whether adjustment is  also to be made for GST paid on Purchase of  of Fixed Assets and Indirect Expenditure Incurred, when such GST has been debited to GST Account and not to Duties and Taxes Account(Expenditure Account).

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As we understand,

As per section 144A(ii) of the Income-tax Act, 1961 (Act), the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation.

The Hon’ble Income-tax Appellate Tribunal Mumbai Bench in the case of Sunshield Chemicals (P.) Ltd. v. ITO [2015] 64 161 (Mumbai) reproduced extracts of the Guidance note on Tax Audit under section 44AB of the Act issued by ICAI, wherein it is stated that the adjustments envisaged by section 145A of the Act will not have any impact on the trading account of the assessee. In other words, both under exclusive method of accounting and inclusive method of accounting, the gross profit in the trading account will remain the same.

Further, it is a well settled position in law that books of accounts are not conclusive for determining the tax liability under a statute. Reliance is placed on a series of decisions of the Hon’ble Supreme Court in the case of viz, Kedarnath Jute Mfg. Co. Ltd. vs CIT [1971] 82 ITR 363 (SC), CIT vs India Discount Co. Ltd [1970] 75 ITR 191 (SC), Sutlej Cotton Mills Ltd. vs CIT [1979] 116 ITR 1 (SC), Tuticorin Alkali Chemicals & Fertilizers Ltd. vs CIT 227 ITR 172 (SC), and CIT vs Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC).

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