The prevailing section provides that income under the head “Profits and Gains of Business and Profession’’ or “Income from other Sources” is computed either in accordance to  cash or mercantile system of accounting as employed by the assessee.

Section 145(2) provides that, every assessee while computing income is required to follow the relevant Accounting Standards applicable.

BEST JUDGEMENT ASSESSMENT – SECTION 144  

The assessing officer may invoke Section 144 if –

• Assessing officer is not satisfied with the correctness or completeness of the accounts of the assessee , and
• Where the assessee has not followed the method of accounting properly.

Section 145A –METHOD OF ACCOUNTING

The method of accounting as applied in certain cases:-

•   The valuation of purchase and sale of goods and inventory for the purpose of determining the income chargeable under the head ‘PGBP’ shall be –

1.  In relation to the method of accounting as employed by the assessee ,
2.  Also adjusted to include the amount of rent, tax, duty, cess or fee as actually paid or incurred by the assessee to bring the goods to the place of its location and conditions as on the date of valuation.

•  The interest received by the assessee on compensation or on enhanced compensation, shall be deemed to be the income of the year in which it is received.

It is to be noted in the present situation that Section 43B has significant influence upon Sec 145A, since the inclusive method which is required to be followed as per Sec 145A is statutorily linked to the allowability of tax, cess & duty on payment basis.

To clarify things further, we provide an extract of Sec 43B which provides that following deductions shall be allowed only if they are paid during the relevant previous year or before the due date of filing return:

i) Any sum payable by way of rent, duty, cess or fee, for the time being in force.

CONCLUSION

May it be well understood that Sec 145A governs inclusion of value of tax, duty, cess & fee in the valuation of sales, purchase & the like. Therefore, an apparent feeling of double taxation arises. However, applicability of Sec 43B removes the double taxation scenario by allowing the aforesaid on payment basis, thus excluding those items from the taxable income so arrived at.