Case Details: SNN Spiritua Developer vs. Deputy Commissioner of Income-tax - [2026] 183 taxmann.com 43 (Bangalore-Trib.)

Judiciary and Counsel Details

• Soundararajan K., Judicial Member & Waseem Ahmed, Accountant Member
• Ramakrishna Kamat, CA for the Appellant.
• Muthu Shankar, CIT (DR) for the Respondent.

Facts of the Case

The assessee was a partnership firm and a sister concern of the SNN group, which was engaged in the real estate business. The assessee filed its return of income for the relevant assessment year, reporting income to tax of Rs. 1,49,35,860.

A search and seizure action under section 132 was carried out in the case of some entities, including the assessee. In response to the notice issued under section 153C, the assessee failed to file a return of income. Consequently, the Assessing Officer (AO) passed an order under section 144 and computed the income by rejecting the assessee’s revenue recognition method.

The matter reached the Bangalore Tribunal.

ITAT Held

The Tribunal held that it was not in dispute that the assessee follows Accounting Standard 9 issued by ICAI read with the Guidance Note on Accounting for Real Estate Transactions. As per the said standard and guidance note, revenue can be recognised only when all significant risks and rewards of ownership are transferred. Such transfer is to be examined with reference to legally enforceable agreements and not merely on the basis of bookings or receipt of advances.

In the instant case, certain flats were merely booked during the year by receipt of token advances, and agreements for sale in respect of those flats were executed only in subsequent years. Mere booking of flats, without execution of a written and enforceable agreement, does not result in the transfer of significant risks and rewards. Therefore, the same cannot form the basis for recognising revenue under the Percentage Completion Method (PCM).

Further, paragraph 5.3 of the Guidance Note mandates that at least 10 per cent of the agreement value as per legally enforceable documents must be realised at the reporting date in respect of each flat. The assessee furnished a separate table showing flats that the AO included for revenue recognition, even though the amount realised as of the reporting date was less than the prescribed 10 per cent of the agreement value. These facts have not been disputed by the Revenue.

The AO’s approach of treating booking advances as equivalent to contracts merely because the booked area and consideration could be identified is not in accordance with the Guidance Note. The ability to estimate consideration or receipt of advances cannot substitute the mandatory requirement of a legally enforceable agreement or fulfil the specific conditions prescribed for revenue recognition.

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Vinita Chakrabarti & Vaishali Amin – [2026] 183 taxmann.com 226 (Article)

1. Introduction

In an economic landscape defined by heightened geopolitical uncertainty, and rapidly evolving global value chains, the Union Budget 2026 marks a pivotal moment for the country’s transfer pricing (TP) framework. The proposals span a wide spectrum — from a comprehensive recast of the Safe Harbour (SH) rules to a more streamlined and time-bound Advance Pricing Agreement (APA) regime, as well as long-needed clarity on assessment timelines and the codification of the 60 day rule. Collectively, these measures illustrate the Government’s intent to upgrade TP administration and better align it with global developments. The reforms are particularly relevant to India’s IT/ITES industry and expanding Global Capability Centres (GCCs), that have consistently sought tax certainty and simplification in operational and compliance processes. This article explores the key TP amendments introduced through the Finance Bill 2026 and analyses their practical ramifications for multinational enterprises operating in India.

2. A New Era for the Safe Harbour Regime

2.1 Unified Approach – Integrating ‘IT Services’

The Honorable Finance Minister in her Budget speech 2026, proposed significant revisions to India’s SH Regulations, with a particular focus on the ‘IT services’.

The SH Regulations, first introduced by the Central Board of Direct Taxes in 2013 (Rules 10TA to 10TG of the Income tax Rules, 1962), were envisioned as a dispute mitigation mechanism. Under this framework, tax authorities agree to accept the transfer price declared by taxpayers for specified international transactions, provided certain pre-defined conditions are met. This mechanism aimed to reduce litigation, lower compliance burdens and provide much needed certainty by limiting exhaustive documentation requirements.

The SH Regulations primarily cover standardised transactions such as software development services, IT enabled services (‘ITeS’), knowledge process outsourcing (‘KPO’), Contract Research & Development (R&D) in software and pharmaceuticals, manufacturing and export of core/non-core automotive components, corporate guarantees, intra-group loans and low value adding service.

Over time, the regime’s perceived higher margins and the complexity of service classifications limited its attractiveness and consequent adoption by taxpayers. Recognising these challenges, the Government rationalised margins and increased thresholds nominally in 2017, broadening the scope to make the regime more relevant and accessible, particularly for smaller taxpayers. Despite these efforts, the uptake remained modest, as stakeholders continued to seek lower SH rates, broader eligibility and higher thresholds to truly unlock the framework’s potential for reducing disputes and easing compliance.

Taking into account various recommendations made through industry bodies and forums, Finance Bill 2026 proposals have decisively addressed longstanding industry concerns by introducing sweeping reforms to the SH Regulations.

Most notably, Finance Bill 2026 has proposed a uniform consolidated SH margin of 15.5% covering multiple categories, i.e. ITES, KPO, software development services, contract R&D relating to software development services, significantly lower than the originally prescribed rates ranging from 20 to 29 % (2013 to 2016), which were later reduced to 17% to 24% (2017 onward), coupled with a major increase in the eligibility threshold from INR 300 crores to INR 2,000 crores. Furthermore, allowing taxpayers to opt for the same SH margin for up to five consecutive years brings a level of certainty and stability that the industry has long been seeking.

These changes are set to eliminate much of the ambiguity surrounding the classification of IT, ITeS and KPO services, streamlining the framework for taxpayers. As a result, SH is poised to become a genuinely viable option for a far broader spectrum of mid-sized and even large IT service providers.

Equally transformative is the introduction of an automated, rule-based approval mechanism, which removes the need for scrutiny or acceptance by a tax officer.

2.2 New Category Introduced – Data Centre Services

India continues to rank among the highest in AI adoption across the Asia-Pacific region, and its data-centre capacity is projected to triple to nearly 4.5?GW by 2030. With abundant datasets, a large and digitally engaged population, and deep engineering talent, India is strongly positioned to scale AI and cloud infrastructure. This potential has already been recognised by global technology leaders—Amazon and Microsoft which announced huge investments totaling to approximately US$52?billion in next 4 to 5 years, further accelerating India’s transformation into a hyperscale digital infrastructure hub.

Acknowledging this momentum and the need to attract global investment while strengthening critical digital infrastructure, the Finance Bill 2026 placed significant strategic emphasis on positioning India as a global centre for cloud, AI, and hyperscale data centre capability. In line with this objective, the Budget introduced a 20 year tax holiday (until 2047) for foreign companies offering cloud services globally, provided such services are delivered through data centres located in India and Indian customers are served through a domestic reseller entity.

These proposals have been positively received by industry bodies and taxpayers, who believe they will additional have/generate a multiplier effect on the economy. To illustrate, the sentiment echoed by Nvidia CEO Jensen Huang, who praised the policy direction and highlighted its broader economic impact, noting that large scale development of data centres in India could replicate the internet era job boom by creating extensive upstream and downstream employment opportunities.

The Finance Bill 2026, further to achieve transfer pricing certainty proposes a 15% safe harbour margin, by introducing a newcategory under the SHR for cloud-linked data-center services rendered to overseas AE(s), where the foreign enterprise uses those services to provide cloud solutions to international customers.

2.3 Positive Boost to Home-Grown Accounting and Advisory Firms

It is proposed to rationalise the definition of ‘accountant’ for the purposes of SH Regulations, thereby enabling more local firms to issue certificates as required under these regulations.

Click Here To Read The Full Article

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Case Details: Dar Al Handasah Consultants (Shair and Partners) India (P) Ltd. vs. Union of India [2026] 182 taxmann.com 821 (Bombay)

Judiciary and Counsel Details

• G. S. Kulkarni & Aarti Sathe, JJ.
• Prakash Shah, Sr. Adv., Jas Sanghavi & Suyog Bhave for the Petitioner.
• Ram Ochani, Suman Kumar Das, Ashutosh Mishra, Ms Shruti D. Vyas, Addl. G.P. & Aditya R. Deolekar, AGP for the Respondent.

Facts of the Case

The petitioner was engaged in the export of engineering services. It imported capital goods in the past and lawfully claimed exemption under Chapter 6 of the Foreign Trade Policy (FTP). Subsequently, it filed an application to exit the Software Technology Park (STP) scheme and to de-bond the capital goods imported earlier. While exiting, it was required to pay the applicable customs duty, along with IGST. The petitioner availed the IGST amount as ITC in its Electronic Credit Ledger. Later, the petitioner was served with a show cause notice that the tax paid for debonding did not fall under input tax and was not eligible as ITC. The petitioner filed a reply to the notice, denying its liability to pay the amounts demanded. However, the authority passed an Order-in-Original confirming the proposal of demand under the show cause notice. Aggrieved by the order, the petitioner filed a writ petition to the Bombay High Court.

High Court Held

The Court held that the petitioner was to be allowed to file an appeal in respect of the disputed amounts. The petitioner was allowed to file an appeal within six weeks before the Joint Commissioner (Appeals).

The post ITC Re-demand on STP De-bonding – Appeal Under Section 107 Allowed | HC appeared first on Taxmann Blog.

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Circular no. HO/19/34/11(8)2025-AFD-POD1/I/4335/2026; Dated: 06.02.2026

The Securities and Exchange Board of India (SEBI) has directed Alternative Investment Funds (AIFs) to upload the latest Net Asset Value (NAV) for each ISIN of AIF units in the depository system, through their respective Registrars to an Issue and Share Transfer Agents (RTAs).

This measure is aimed at improving transparency, data accuracy, and market-wide availability of AIF valuation information.

1. Timeline for Uploading NAV

The NAV data must be uploaded:

• On or before 1 May 2026, or
• Within 30 days from the valuation date of the investment portfolio,
  whichever is later.

AIFs are required to ensure adherence to this timeline for each ISIN.

2. Determination of Valuation Date

For the purpose of computing the 30-day period, the valuation date shall be determined as follows:

2.1 Valuation by Independent Valuer

• The date of the valuation report issued by the independent valuer.

2.2 Valuation by Internal Valuer

• The date on which the valuation is documented in the internal records of the fund.

3. Responsibility of the AIF Manager

SEBI has clarified that:

• The AIF manager shall be responsible for ensuring timely and accurate uploading of the NAV data.
• Accountability for correctness and compliance rests with the manager, even though the upload is routed through RTAs.

4. Effective Date

• The provisions of this circular come into force with immediate effect.

AIFs, managers, and RTAs are expected to align their valuation, reporting, and system processes accordingly.

5. Key Takeaway

The directive:

• Enhances transparency and consistency in AIF NAV reporting
• Strengthens data availability in the depository ecosystem
• Places clear accountability on AIF managers for compliance

Click Here To Read The Full Circular

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Case Details: Life Line Multi- Ventures (P.) Ltd. vs. Union of India [2026] 182 taxmann.com 635 (Orissa)

Judiciary and Counsel Details

• Harish Tandon, CJ. & Murahari Sri Raman, J.
• Rudra Prasad Kar, Sr. Adv. & Sriman Arpeet Mohanty, Adv. for the Petitioner.
• Sunil Mishra, Standing Counsel & Mukesh Agarwal, Junior Standing Counsel for the Respondent.

Facts of the Case

The petitioner, a private limited company, filed a writ petition before the Orissa High Court to question the legality of the show-cause notice (SCN) issued in Form GST DRC-01. The SCN was issued, under Section 73 of the Odisha Goods & Services Tax Act, 2017 (OGST Act) for the tax periods from April 2021 to March 2022. The petitioner contended that the SCN was not sustainable as it sought to apply an amendment to Section 17(5)(d) introduced by the Finance Act 2025. The amendment was brought into force in Section 17(5)(d) by virtue of the Finance Act 2025, whereby for the words “plant or machinery”, the words “plant and machinery” were substituted. Further, the SCN was issued in connection with and in pursuance of an audit report furnished under Section 65 of the OGST Act, which is hit by the period of limitation provided therein. The Department contended that the matter was taken up for the first time for the entertainment of the writ petition. The audit was completed on 02-07-2025, and the order under Section 73 of the OGST Act was passed on 05-12-2025. Thus, the legality of the SCN cannot be examined in the present writ petition.

High Court Held

The Orissa High Court held that the SCN could not be issued to determine tax liability for the relevant period when the amendment to Section 17(5)(d) was brought in by virtue of the Finance Act 2025 and the OGST (Amendment) Act 2025. The amendment to Section 17(5)(d) was notified after the issuance of the SCN. Therefore, the transactions for the relevant period could not be questioned by such SCN. The Court was of the prima facie view that the authority could not issue the SCN to apply the amendments introduced after the issuance of the SCN. The question of the retrospectivity of the amendment was raised. The Court was inclined to entertain this writ petition to consider whether the SCN itself was validly issued and the authority could proceed to adjudicate based on the audit report submitted after the stipulated period. Therefore, the matter was admitted, and the authority was restrained from proceeding with the recovery of demand raised until the next date.

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Case Details: Income-tax Officer vs. Arcil Retail Loan Portfolio - 001- A- Trust [2026] 182 taxmann.com 849 (Mumbai-Trib.)

Judiciary and Counsel Details

• Amit Shukla, Judicial Member & Makarand Vasant Mahadeokar, Accountant Member
• Rajesh Kumar Yadav, CIT-DR for the Appellant.
• Jeet Kamdar for the Respondent.

Facts of the Case

The assessee was a securitisation trust constituted by an Asset Reconstruction Company (ARC) under the SARFAESI Act and RBI Guidelines. It filed its return of income, claiming exemption under sections 61 to 63 in the hands of Security Receipt holders.

During the proceedings, the Assessing Officer (AO) treated the assessee as neither a revocable nor a determinate trust; accordingly, he treated it as an Association of Persons (AOP) under section 2(31) and denied exemption under sections 61 to 63. On appeal, the CIT(A) deleted the additions.

The matter then reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the issue was whether the assessee-trust was liable to be assessed as an AOP and whether the trust was revocable or irrevocable for sections 61 to 63. Sections 61 to 63 form a self-contained code dealing with the taxation of income arising from revocable transfers. The legislative scheme is explicit that where the transferor retains the right to re-assume control over income or assets, such income cannot be assessed in the hands of an intermediary entity but must be taxed in the hands of the transferor.

Section 63 deliberately adopts a broad and inclusive definition of both “transfer” and “revocable transfer”. The statute does not prescribe that revocation must be unilateral, unconditional, or exercisable by an individual contributor. What is required is a contractual or legal mechanism for the re-transfer of assets or the re-assumption of power.

On a plain reading of the trust deed, Security Receipt Holders were expressly conferred a right to revoke their contributions. Upon such revocation, the entire trust fund stands re-transferred to the Security Receipt Holders or their designees in proportion to their holdings, the scheme itself stands dissolved, the trustee ceases to act, and the Security Receipts stand extinguished. These provisions clearly satisfied both limbs of section 63(a).

The AO’s contention that revocation requiring consent from a specified percentage of holders negates the bench has been expressly rejected by the coordinate bench. The statutory position was further clarified by the coordinate bench, observing that section 63 does not require that the power of revocation should be unconditional or exclusively vested in a single transferor, and that it is sufficient if the trust deed contains provisions vesting the power of revocation, even if such power is exercisable collectively or subject to specified conditions.

Further, once it was held that the trust was revocable, section 164 had no independent application. Sections 61 to 63 override section 164 in cases of revocable transfers. The AO’s attempt to apply section 164, therefore, proceeded on an incorrect legal premise. Accordingly, the assessee could not be assessed as an AOP, as the beneficiaries were identifiable and the trust was statutorily mandated under the SARFAESI Act and RBI Guidelines, and Section 164 had no application.

List of Cases Reviewed

• ITO-21(3)(2), Mumbai v. Scheme A1 of ARCIL CPS 002 XI Trust [2020] 119 taxmann.com 216/[2021] 186 ITD 136 (Mumbai – Trib.)
• ARCIL CPS 002 XIII Trust v. ITO [ITA No. 434(Mum) OF 2017, dated 7-6-2021] (para 26) followed.

List of Cases Referred to

• ITO-21(3)(2), Mumbai v. Scheme A1 of ARCIL CPS 002 XI Trust [2020] 119 taxmann.com 216/[2021] 186 ITD 136 (Mumbai – Trib.) (para 9)
• ITO v. ARCIL AARF-I-1 Trust [ITA No. 7353(Mum) of 2019, dated 15-9-2021]. (para 9)
• ARCIL CPS 002 XIII Trust v. ITO [ITA No. 434(Mum) OF 2017, DATED 7-6-2021] (para 9)
• ARCIL Retail Loan Portfolio 004 BTrust v. ITO [ITAppeal No. 256 (Mum) of 2024, dated 28-5-2024] (para 9)
• ARCIL Retail Loan Portfolio 001 J Trust v. ITO [ITA No. 4199 and 2909(Mum) OF 2023, DATED 7-6-2024] (para 9)
• Indian Corporate Loan Securitisation Trust v. ITO-9 (3) (2), Mumbai [2017] 80 taxmann.com 315 (Mumbai) (para 18).

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Circular no. RBI/2025-26/205 A.P. (DIR Series) Circular No. 21; Dated: 06.02.2026

The Reserve Bank of India (RBI) has announced further rationalisation of the Voluntary Retention Route (VRR) for Foreign Portfolio Investors (FPIs), with a view to enhancing operational flexibility and ease of doing business in the Indian debt markets.

1. Background of the Voluntary Retention Route

The VRR was introduced by the RBI in March 2019 as an additional investment channel for FPIs with long-term investment interests in Indian debt markets.

Since its introduction, the RBI has periodically recalibrated the VRR framework to respond to market developments and stakeholder feedback.

2. Removal of Separate VRR Investment Limit

The RBI has now decided to:

• Remove the ₹2.5 lakh crore long-term investment limit prescribed under the VRR.

Going forward:

• Investments under the VRR shall be subsumed within the overall investment limits applicable to FPIs under the General Route.

3. Treatment of VRR Investments Under the General Route

Accordingly, all FPI investments made through the VRR in the following instruments shall be reckoned under the respective General Route limits:

• Central Government Securities, including Treasury Bills
• State Government Securities (State Development Loans)
• Corporate debt securities

This change eliminates the need for a separate VRR investment cap while retaining the route as a facilitative framework.

4. Exit Flexibility for FPIs Under VRR

To further enhance flexibility, the RBI has provided that:

• FPIs that have availed retention periods longer than the minimum prescribed retention period
• Shall have the option to liquidate their portfolio, either in whole or in part, and
• Exit the VRR after the completion of the minimum retention period

This measure allows FPIs greater freedom in managing portfolio duration and exit timing.

5. Effective Date

• These directions shall come into force from 1 April 2026.

FPIs and market intermediaries are required to align their investment monitoring and compliance processes accordingly.

6. Key Takeaway

The revised framework:

• Integrates VRR investments seamlessly with the General Route
• Removes quantitative constraints while retaining long-term investment discipline
• Enhances exit flexibility for FPIs
• Supports stable and sustained foreign investment in Indian debt markets

Click Here To Read The Full Circular

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Informal Guidance; Dated: 06.02.2026

The Securities and Exchange Board of India (SEBI) has clarified the manner in which the quarterly compliance report on Corporate Governance and the related affirmation under Regulation 27(2)(a) of the LODR Regulations, read with SEBI Circular dated 31 December 2024, are to be reviewed by listed entities.

1. Mandatory Placement Before the Board of Directors

SEBI has clarified that:

• The quarterly compliance report on Corporate Governance, along with the required affirmation, must be placed before the Board of Directors of the listed entity.
• Delegation of compliance monitoring to a Board committee, even if permitted under RBI norms, does not fulfil the requirement prescribed under the LODR Regulations.

The obligation is specifically to place the report before the full Board.

2. Inapplicability of Committee-Level Review

SEBI has expressly stated that:

• Review or monitoring of the compliance report by a Board committee
• Even where such delegation is allowed under sectoral regulations (such as RBI norms)

Cannot be treated as compliance with Regulation 27(2)(a) of the LODR Regulations.

3. Applicability to Public Sector Banks

The clarification applies to all listed entities, including:

• Listed Public Sector Banks

Sector-specific governance frameworks do not dilute or override the requirements under the SEBI (LODR) Regulations.

4. Regulatory Intent

The clarification reinforces SEBI’s intent to:

• Ensure direct Board-level oversight of corporate governance compliance
• Strengthen accountability at the highest governance level
• Maintain uniform standards across all listed entities

5. Key Takeaway

• Placing the quarterly corporate governance compliance report before the Board is mandatory
• Committee-level review is insufficient, regardless of sectoral regulatory permissions
• The requirement applies uniformly to all listed entities, including PSBs

Click Here To Read The Full Update

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CA Rakesh Kedia, Manish Pareek & Gautam Kamra – [2026] 183 taxmann.com 215 (Article)

An argument to relive LIFO and align inventory valuation with economic reality.

The current prohibition of LIFO (Last-In, First-Out) inventory valuation under AS-2 and ICDS-II creates severe financial hardships for gold and silver traders operating in highly volatile markets. LIFO was prohibited in India effective from the financial year 2016-17 when the Central Government notified ten Income Computation and Disclosure Standards (ICDS), with ICDS-II mandating that businesses use either FIFO (First-In, First-Out) or weighted average cost method for inventory valuation. This prohibition aimed to align Indian accounting practices with international standards and prevent potential tax manipulation, but it has created unintended hardships for commodity traders facing extreme price volatility. This article demonstrates how mandatory FIFO accounting forces businesses to pay excessive taxes on unrealised paper profits, depletes working capital, and ultimately threatens business viability during periods of rapid price appreciation. We argue that LIFO should be permitted as an inventory valuation method for commodity trading businesses dealing with precious metals.

1. The Cash Flow Crisis – A Real-World Example

Consider a gold trader who purchased inventory at the following prices:

• 1 gram @ Rs. 5,450 (opening stock from January 2024)
• 1 gram @ Rs. 14,380 (recent purchase in January 2026)

Now, gold prices rise to Rs. 14,500 per gram. The trader sells 1 gram of gold.

1.1 Under FIFO (Current Mandatory Method)

• Sale – Rs. 14,500
• COGS – Rs. 5,450 (oldest inventory)
• Gross Profit – Rs. 9,050
• Tax @ 30% – Rs. 2,715
• Cash remaining after tax – Rs. 11,785
• Closing stock – 1 gram valued at Rs. 14,380

The Problem – To replace the 1 gram sold, the trader needs Rs. 14,500 (current market price). But after paying Rs. 2,715 in taxes, only Rs. 11,785 remains. The trader is short by Rs. 2,715 and cannot replenish inventory at current prices!

This forces the trader to either borrow funds (incurring interest costs) or reduce inventory levels, both of which harm business operations. In a highly competitive market with thin margins, this cash drain can be devastating.

1.2 Under LIFO (Proposed Solution)

• Sale – Rs. 14,500
• COGS – Rs. 14,380 (most recent inventory)
• Gross Profit – Rs. 120
• Tax @ 30% – Rs. 36
• Cash remaining after tax – Rs. 14,464
• Closing stock – 1 gram valued at Rs. 5,450

The Solution – With Rs. 14,464 in hand, the trader is much closer to the Rs. 14,500 needed to replace inventory. LIFO saves Rs. 2,679 in taxes compared to FIFO (Rs. 2,715 – Rs. 36), which significantly improves working capital and business sustainability. The trader can continue operations without borrowing or depleting inventory. Under FIFO, the trader retains only 81.3% of the sale proceeds after tax (Rs. 11,785 out of Rs. 14,500), making it difficult to fully replenish inventory. Under LIFO, the trader retains 99.8% of proceeds (Rs. 14,464 out of Rs. 14,500), enabling near-complete inventory replenishment.

2. The ‘Paper Profits’ Problem – When Prices Fluctuate

FIFO forces businesses to pay taxes on paper profits that do not reflect economic reality. This becomes especially problematic when prices fluctuate:

Scenario – Price Surge Followed by Correction

Year 1 (Price at Rs. 14,500):

• Under FIFO – Trader pays tax on Rs. 9,050 profit (Rs. 2,715 in taxes)
• Under LIFO – Trader pays tax on Rs. 120 profit (Rs. 36 in taxes)
• Remaining inventory under FIFO – 1 gram valued at Rs. 14,380
• Remaining inventory under LIFO – 1 gram valued at Rs. 5,450

Year 2 (Price crashes to Rs. 6,000):

• Under FIFO – Remaining 1 gram is sold at Rs. 6,000

1. 1. Loss – Rs. 6,000 – Rs. 14,380 = Rs. 8,380 loss
   2. Net position – Paid Rs. 2,715 tax in Year 1, have Rs. 8,380 loss to carry forward

• Under LIFO – Remaining 1 gram is sold at Rs. 6,000

1. 1. Profit – Rs. 6,000 – Rs. 5,450 = Rs. 550 profit
   2. Tax – Rs. 165 (30% of Rs. 550)
   3. Net Position – Total tax over 2 years – Rs. 36 + Rs. 165 = Rs. 201

The FIFO trader paid Rs. 2,715 in taxes in Year 1 on profits that largely evaporated when prices crashed. Even with a Rs. 8,380 loss to carry forward, if the business closes or cannot generate sufficient future profits, that Rs. 2,715 is permanently lost.

The LIFO trader paid only Rs. 201 total over both years, accurately reflecting the real economic gain. LIFO matches current costs with current revenues, avoiding tax on temporary price spikes.

Click Here To Read The Full Article

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