P. A. JOSE Vs. UNION OF INDIA

JUDGEMENT

(1.) These writ appeals arise from the common judgment dtd. 20/5/2024 of a learned Single Judge in W.P.(C).Nos.30318/2019, 1529/2024, 17949/2020, 17828/2020, 17964/2020, 17972/2020, 28444/2021, 29846/2021, 30448/2021, 30354/2019, 30340/2019, 30373/2019 and 32237/2019. The writ petitioners in the aforesaid writ petitions are the appellants before us.

(2.) The challenge in the writ petitions was to para 16 of Income Computation and Disclosure Standards [ICDS] II and the Notification 87/2016 dtd. 29/9/2016 to the extent they prescribed that the cost of inventories shall be computed by using the First In First Out (FIFO) or Weighted Average Cost method, to the exclusion of other methods relating to valuation of inventory, such as the Last In First Out (LIFO) method, while computing income under the head of Profits and Gains of Business or Profession under the Income Tax Act, 1961 [hereinafter referred to as the "I.T. Act"]. It was contended that the said paragraph of ICDS II and the Notification dtd. 29/9/2016, to the extent impugned, were violative of Articles 14, 19 (1)(g) and 265 of the Constitution of India and hence unconstitutional and legally unenforceable. There was also a prayer to declare as unconstitutional Sec. 145A of the IT Act, as introduced by the Finance Act, 2018 w.r.e.f. 1/4/2017.

(3.) The facts necessary for a disposal of these appeals have already been narrated in the impugned judgment of the learned Single Judge and hence do not require to be repeated in this judgment. Essentially the grievance of the petitioners was with regard to the effect of the amendment in the IT Act, that introduced a new Sec. 145A therein that was markedly different from the earlier provision that existed upto 31/3/2018. Read along with the ICDS II that was notified in 2016, and the terms of the Notification dtd. 29/9/2016, the appellant assessees, who are assessed to Income tax under the head of Profits and Gains of Business and Profession were obliged by the provisions of the newly introduced Sec. 145A to compute their cost of inventories using the FIFO or Weighted Average Cost method. This required them to change their past practice of computing their cost of inventories using the LIFO method and switch over to the new scheme with effect from 1/4/2017. The appellants therefore contended, inter alia, that (i) restricting the method of computation of cost of inventory to FIFO or Weighted Average Cost method, to the exclusion of LIFO, was tantamount to disregarding the well settled principle in accountancy that the cost of inventory could be computed in accordance with any of the established methods of accounting of which LIFO was one (ii) that there was no rationale whatsoever for stipulating FIFO and Weighted Average Cost as the only methods by which a realistic value of the cost of inventory could be computed (iii) there was no basis for bringing about a classification between two sets of assessees viz. those who followed the LIFO method and those who followed the FIFO/Weighted Average Cost method, especially when all the said methods had been recognised as acceptable for determining the cost of inventories under the Accounting Standards as well as under the IT Act till 2018 and (iv) the retrospective effect given to Sec. 145A, that was introduced by the Finance Act, 2018, with effect from 1/4/2017 was bad since it would result in an application of two different yardsticks for valuing the opening stock and closing stock for the financial year in question and entail the creation of a notional income.