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

Sagar Textiles Ltd. holds stock of listed securities in one category with an actual cost of ₹10,00,000 and net realisable value of ₹9,40,000, and in another category with cost ₹6,00,000 and net realisable value ₹6,50,000. Both are quoted regularly on a recognised stock exchange and the company is not a bank. Under section 277 of the Income-tax Act, 2025, what is the value of the securities inventory?

The value is ₹15,90,000. Securities are valued at the lower of cost or net realisable value, compared category-wise. The first category is taken at ₹9,40,000 and the second at its cost of ₹6,00,000, because its NRV is higher, and the two are added.

  1. A₹15,90,000, category-wise lower of cost or NRVCorrect
  2. B₹16,00,000, aggregate cost
  3. C₹16,50,000, aggregate lower of NRV
  4. D₹15,40,000, taking the lower figure for both categories less the gain

Explanation

Section 277(1)(iv) gives the lower of cost or NRV, and section 277(3) requires a category-wise comparison. Category one is ₹9,40,000 and category two is ₹6,00,000, so the total is ₹15,90,000. Aggregate comparison would give ₹15,90,000 only by coincidence of the wrong basis; here aggregate cost ₹16,00,000 against aggregate NRV ₹15,90,000 is not the prescribed method.

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