CBDT issues draft form for businesses to report inventory valuation by cost accountants

The income tax department has come out with a draft form for various categories of businesses to report the valuation of their inventories, including equity and debt securities, livestock, or other raw material/by-products, by a cost accountant when asked by a tax officer.

Beginning this fiscal, tax officers have been empowered to order inventory valuation from a cost accountant at any stage of the proceedings pending before him/her. Such valuation can be sought if the tax officer has doubts regarding the correctness of the accounts, the multiplicity of transactions in the accounts, or the specialized nature of the business activity.

The Central Board of Direct Taxes (CBDT) has now come out with a draft form 6C inviting stakeholder comments by August 31 on the proposed columns for reporting inventories valuation certified by a cost accountant.

Nangia Andersen LLP Partner Vishwas Panjiar said in order to protect revenue's interest and to prevent the deferral of taxes through undervaluation of inventory, a tax officer from this year, has been empowered to order inventory valuation from a cost accountant.

"The form is quite central board exhaustive and could potentially overlap with existing inventory reporting obligations because of the presence of multiple experts looking at the same data. For instance, manner of computing Net Realisable Value for an inventory is a subjective exercise and may be different for a tax auditor vis-a-vis a cost accountant," Panjiar said.

Also, the assessing officer may not have the necessary skills to appreciate the difference in the methodology adopted by the tax auditor vis-a-vis a cost accountant in inventory valuation especially in the case of complex and unique businesses.

Further, assuming a situation where there is a deviation between the value of inventory which the tax officer adjusts in the current assessment year, the revised cost base should be available in future years. However, there is no guidance within the law to grant this consequent benefit to the assessee in the next year, Panjar added.

In order to ensure that inventory is valued in accordance with the Income Tax Act provisions, the government through the Finance Act 2023, amended the I-T Act to enable Assessing Officer to direct the assessee to get inventory valued by a cost accountant, nominated by the Principle Chief Commissioner or Chief Commissioner.

Assessee is required to furnish the report of inventory valuation in the prescribed form duly signed and verified by the cost accountant, the CBDT said while releasing the draft form.