The Hindu Business Line : Call for scrapping I-T provision on inventory valuation

A section of the Indian industry is suggesting that the accounting standard on inventory valuation specified under the Income-Tax Law be withdrawn with retrospective effect as it is at variance with the valuation standard laid down by the Institute of Chartered Accountants of India (ICAI).

As per the ICAI standard,taxes and duties recoverable by the enterprises are not included in the cost of purchases. But under Section 145A of the Income-Tax Act, such taxes are includible.

This has compelled business houses to maintain two sets of records, which meant additional time, cost and confusion, Mr Sidharth Birla, Co-Chairman, Corporate Laws and Legal Affairs Committee, Federation of Indian Chambers of Commerce and Industry.

"When in the ultimate analysis the position is tax neutral, then why this anomaly?" he argued.

The standard came into effect from April 1, 1999. As per the standard, the cost of inventories should comprise cost of purchases, conversion, and other costs incurred in bringing the inventories to their present location and condition.

Cost of purchases consists of purchase price inclusive of taxes and duties, transport, handling and other costs directly attributable to the acquisition of finished goods, materials or services.

However, taxes and duties, which can be subsequently recovered by the enterprises from the taxing authorities, are not included in the cost of purchase.

"There exists some contradiction," a FICCI official pointed out.

Section 145A inserted in the Income-Tax Act with effect from April 1, 1999, stipulates that the valuation of purchase and sale of goods and inventory for the purpose of determining the income chargeable under the head `profits and gains of business and profession' shall be adjusted to include the amount of any tax, duty, and cess or fee, actually paid or incurred by the assesses to bring the goods to the place of its location and condition as on date of valuation.

This variation in interpretation may not have any material impact on the profit and loss account, but it has an impact on the disclosure in terms of the values, a senior corporate executive pointed out.

More Stories on : Accounting Standards | Income Tax

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page