ITAT, DELHI BENCH ‘A’ : New Delhi Ananta Raj Proteins Ltd. v. DCIT ITA No. 890 & 891/D/2007 June 30, 2009

Scope for change in method of accounting for valuation of closing stocks after introduction of section 145A of IT Act, 1961

The provisions of section 145A have disabled the assessee from frequently changing the method of valuation of the stocks.


 RELEVANT EXTRACTS:

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13. It may be mentioned that provisions of section 145A were inserted by the Finance Act No. 2, 1998 w.e.f. 1-4-1999. It may be mentioned that prior to assessment year 1998-99 the entire provisions relating to method of accounting were contained in sec. 145 only. As per that sec. The income under the head 'profits and gains of business' or 'other sources' shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. In other words, me Income lax Act, 1961 recognised two systems of accounting, cash system of accounting and mercantile system of accounting as the methods of accounting. It was also provided in the same section that the Central Government is authorized to notify from time to time the accounting standards to be followed particularly in case of assessee or in respect of any income. In pursuance thereof, certain accounting standards were issued by means of notifications. By Notification No. S069E dated 25-1-1996 reported in 1996, 218 ITR Statute I were issued (to maintain the brevity in the order the said Notification is not reproduced) Accounting Standard –II, by its clause (a) provides that a change in the accounting policy shall be made only if the adoption of a different accounting policy is required by the Statute or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statement by an assessee. The said clause reads as under :-

“9. A change in an accounting policy shall be made only if the adoption of a different accounting policy is required by statute or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements by an assessee.”

14. The provisions of sec. 145A start with non-obstante clause. A clause beginning with "notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force" is sometimes appended to a section in beginning, with a view to give the enacting part of the section in case of conflict an overriding effect over the provision or Act mentioned in the non-obstante clause. Union of India v/s. G.M. Kokil (1984) Supp. SCC/96). It is equivalent to showing that inspite of the provision or Act mentioned in the non-obstante clause the enactment following it will have full operation or that the provisions impressed in the non-obstante clause will not be an impediment for the operation of the enactment. Thus, a non-obstante clause may be used as a legislative device to modify the ambit of the provision or law mentioned in the non-obstante clause or to override it in specified circumstances.

15. The interpretation of the non-obstante clause are now well-known. The provisions of sec. 145A are one such provision which provides notwithstanding the contrary contention of sec. 145 the provisions of sec. 145A will prevail. In other words there could be some contrary situation when provisions of see. 145 is applied. In case of such contradiction or contrary situations the provisions of sec. 145A will prevail over sec. 145. The provisions of sec. 145A are very clear and also unambiguous and they shall prevail over contrary provisions of sec. 145 of the Act. To be precise, sec.145 empowers the Central Government to notify certain accounting standards. This accounting standards may not be relevant in so far as the provisions of sec. 145A are concerned. Moreover, sec. 145A deals with the valuation of the purchases, sale of goods and inventory for the purpose of determining the income chargeable under the head "Profits and gains of business or profession." The Act requires the assessee's to value the same in accordance with the method of accounting regularly employed by the assessee. Now the question is when once the assessee has chosen to adopt cost as the method of valuation and it was regularly employed by the assessee he may not be permitted to change in subsequent year.

16. Now coming to sec. 145 and justifying the change on the basis of the AS-II referred to earlier, will only mean that the provisions of sec. 145A will get negated. The purpose of the non-obstante clause is just to prevent that happening. The legislative intent appears to be that as regards the valuation of the purchase and sale of goods and inventory the Act it is rigid or inflexible and the change in the method once regularly employed may not be strictly permissible under the provisions of sec. 145A of the Act. With regard to issues other than aspects of valuation of stocks the provisions of sec. 145(1) & (2) would be enabling assessee to claim the changed method if it is bona fide and is regularly employed by the assessee. Even the changed method of accounting is permissible u/s 145 (1) & (2) are not so provided in sec. 145A of the Act.

17. In a way the provisions of section 145A are specific provisions. They deal with method of valuation of purchase and sale of goods and inventories, which is required for the purpose of determining the income under the head "Profits and gains of business", whereas the provisions of section 145 are general provisions, dealing with the method of accounting in general for the purpose of determining the income of the assessee, who is deriving income under the head "business"~br "other"sources". If a special provision is made on certain matter, that mater is excluded from the general provision. Reference may also be made to the decision of the Supreme Court in Venkateshwar Rao v. Govt, of Andhra Pradesh AIR 1966 SC 828. The principle is expressed in the maxims Generalia specialibus non derogant, and Generalibus specialia derogant.

18. In the light of the discussions above, in our view the Assessing Officer as well as the CIT(A) have correctly disallowed the resultant loss, which was mainly on Lhc basis of change in the method of valuation of the inventories. Before parting, we may observe that various case laws relied upon on both sides related to the period prior to section 145A was introduced. In our view, as we have discussed earlier, the provisions of section 145A have disabled the assessee from frequently changing the method of valuation of the stocks.



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