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CMA Final · Direct Tax Laws and International Taxation · Income Computation and Disclosure Standards (ICDS)

Mehta Traders holds unlisted shares as stock-in-trade, initially recognised at actual cost of Rs 8,00,000. At year end their net realisable value is Rs 6,50,000. Under the Income-tax Act, 2025, at what value is this inventory taken for computing business income?

The unlisted shares are valued at their initially recognised actual cost of Rs 8,00,000. Section 277(1)(iii) excludes unlisted securities from the lower of cost or net realisable value rule, so the Rs 1,50,000 fall in value is not recognised for tax purposes.

  1. ARs 6,50,000, being the lower of cost and NRV
  2. BRs 8,00,000, being actual cost initially recognisedCorrect
  3. CRs 7,25,000, being the average of cost and NRV
  4. DRs 1,50,000, being the diminution to be added back

Explanation

Under section 277(1)(iii), unlisted securities, or listed securities not quoted with regularity, are valued at actual cost initially recognised. The lower of cost and NRV rule applies to other securities under clause (iv). So the NRV fall of Rs 1,50,000 is ignored and value stays Rs 8,00,000.

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