Inventory Valuation and Budget 2023-24 Introduction of Inventory Valuation by Cost Accountants: A Surprise in Budget 2023 Budget 2023 has brought some surprises for various assesses, and one such surprise is the introduction of Inventory Valuation by Cost Accountants under Section 142(2A) of the Income Tax Act. While the budget doesn’t explicitly recognize the importance of inventory valuation by Income Tax authorities, it grants recognition to cost accountants for this purpose. Key Highlights and Changes Proposed: Shift in Focus to Costing: The focus has shifted to the use of costing for inventory valuation, applying Cost or Net Realizable Value, whichever is less. Undervaluation of inventories may lead to underpayment of Income Tax. Amendment in Section 142(2A): The amendment aims to address the issue of permanent deferral of taxes through undervaluation of inventory. Assessees are required to maintain books of account for the purposes of the Income Tax Act. Role of Cost Accountants: Assessing Officers can direct the assessee to get the inventory valued by a cost accountant nominated by tax authorities. Assessee needs to furnish the inventory valuation report in the prescribed form, duly signed and verified by the cost accountant. The term “cost accountant” is defined in line with the Cost and Works Accountants Act, 1959. Expenses and Opportunity of Being Heard: Expenses, including the cost accountant’s remuneration, will be determined by tax authorities and paid by the Central Government. The assessee will have an opportunity to be heard in respect of any material gathered based on such inventory valuation, except in assessments under section 144. Consequential Amendments: Amendments in section 153 exclude the period for inventory valuation through a cost accountant for computing time limitations. Amendment in section 295 grants power to make rules for the form and particulars of the report of inventory valuation. Effective Date: The amendments in section 142 and 153 will be effective from April 1, 2023, applicable to the assessment year 2023-2024 and subsequent years. The amendment in section 295 will also take effect from April 1, 2023. Conclusion: Assessees are advised to implement a robust system of inventory valuation to minimize variances in case of specific orders by income tax authorities for inventory valuation by cost accountants under section 142(2A). An effective costing system is crucial for accurate inventory valuation.