In the case of a trading concern VAT input tax paid on purchase separately get captured. (Vat input A/c). Therefore the closing stock value automatically do not include the VAT element.
My question is whether we should include VAT in the value of closing stock.
Practically nobody seems to do this
So far reporting is concerned we may include VAT in the stock valuation applying section 145A of the Income Tax Act, 1961. However, in Tax Audit Report we may make a disclosure specifying the amount of Output VAT, Input VAT and VAT paid. The thing is in lines with Central Excise and Custom duties. So far as financial reporting is concerned we may not include VAT, Excise etc. Section 145A is included to reconcile this difference.