Section 145 and 145A of Income Tax Act 1961: Method of Accounting and Method of Accounting in Certain Cases

Section 145 - Method of Accounting

Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall be computed in accordance with either the cash system or mercantile system of accounting regularly employed by the assessee, subject to the provisions of Section 145(2).

The Central Government may notify Income Computation and Disclosure Standards (ICDS) in the Official Gazette for any class of assessees or income.

Where the Assessing Officer is not satisfied about the correctness or completeness of accounts, the regularity of the accounting method, or compliance with notified standards, assessment may be made in accordance with Section 144 of the Income Tax Act.

Section 145A - Method of Accounting in Certain Cases

Section 145A provides valuation rules for determining income chargeable under the head "Profits and gains of business or profession".

• Inventory valuation shall be made at the lower of actual cost or net realisable value in accordance with applicable Income Computation and Disclosure Standards.
• Purchase, sale and inventory valuation shall include taxes, duties, cess or fees actually paid or incurred to bring goods or services to their location and condition on the valuation date.
• Unlisted securities or securities not regularly quoted on a recognised stock exchange shall be valued according to applicable prescribed standards.
• Other securities shall be valued at the lower of actual cost or net realisable value as prescribed.