Revisiting the Scope of Section 145 of the Income Tax Act

On 20 May 2024, the Kerala High Court ruled that the Revenue (Income Tax) Department should accept an assessee’s inventory valuation derived by consistently applying the last-in-first-out (LIFO) method before the retrospective amendment to Section 145A introduced with effect from 1 April 2017. It observed that as the assessee consistently applied the LIFO method and filed his returns, the retrospective amendment would not be applicable against him for the assessment year 2017–2018. However, upholding the retrospective amendment, the Court ordered the Revenue Department to accept the assessee’s opening and closing inventory value derived by applying the LIFO method or to permit him to switch to the FIFO or weighted average cost method. It validates the retrospective amendment, binding on all assessees, but indicates that in a conflicting scenario with fundamental accounting principles such as consistency, the tax laws shall prevail. It creates an opportunity for new vistas of accounting and taxation research.