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4.4 The position so far as Corporates are concerned is that there are two methods of accounting to be followed: One under GSR 739(E) notified by the MCA on December 7, 2006, in terms of Section 211 of the Companies Act 1956, and the other is for computation of taxable income which is as a result of the convergence of Indian Accounting Standards with the IFRS. Both have different methods of recognition of the revenue, assets, and liabilities. To address this gap, the Central Board of Direct Taxes constituted the Committee, referred to above, 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, 32237/2019 which submitted its first report in August 2011, wherein the Committee, in its recommendations, said that the standards proposed to be notified in terms of Section 145(2) of the Act should apply only to the computation of taxable income without any compulsion to maintain books as per the notified Accounting Standards. The Committee recommended the use of fourteen of the thirty-one Accounting Standards issued by the ICAI and the Accounting Standards to be identified as ICDS to provide a comprehensive framework for computing taxable income. The final report of the Committee was submitted in October 2013, and thereafter, an amendment to Section 145 of the Act was brought about in 2014. The ICDS was notified by Notification No.S.O.892(E) dated 31.03.2015 and was made applicable from the Financial Year 2015-16 [Assessment Year 2016-17]. It is said that prior thereto, detailed consultations were held with the stakeholders. Based on the representations 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, 32237/2019 received, the Central Government decided to defer the commencement date of the ICDS from April 1, 2015, to April 1, 2016, i.e., relevant Financial Year 2017-18. Eventually, the impugned notification dated 29.09.2016 was issued making the ICDS applicable effective from April 1, 2017.

5.1 The Delhi High Court further held that the amendments to Section 145 permitted the Central Government, as a delegate of the Legislature, to notify standards for income computation but not to bring about changes to the settled principles as laid down in judicial precedents which seek to interpret and explain statutory provisions contained in the Act. If such power is permitted to be exercised by the Central Government, then, clearly, such power would be an instance of unfettered power in the hands of the Executive which is unguided and uncanalised. Article 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, 32237/2019 265 of the Constitution of India provides that no tax shall be levied or collected except under the authority of law. The power under Section 145(2) of the Income Tax Act cannot permit changing the basic principles of accounting that have been recognized in the various provisions of the Act unless, of course, corresponding amendments are carried out to the Act itself. Such amendments would be consistent with an acknowledgement that, as far as the Act is concerned, changing the method of accounting for the computation of taxable income would partake in an essential legislative function. The Delhi High Court held that Section 145(2), as amended, is to be read down to restrict the power of the Central Government to notify ICDS that do not seek to override the binding judicial precedents or provisions of the Act. The power to enact a validation law is an essential legislative power that can be exercised only by the Parliament and not by 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, 32237/2019 the Executive.

(ix) As far as para 6 of ICDS IV is concerned, the proportionate completion method, as well as the contract completion method, have been recognized as a valid method of accounting under the mercantile system of accounting by the Supreme Court in CIT v. Bilhari Investment Pvt. Ltd. (supra) and this court in CIT v. Manish Buildwell Pvt. Ltd. and Paras Buildtech India Pvt. Ltd. v. CIT (supra). Therefore, to the extent that para 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, 32237/2019 6 of ICDS IV permits only one of the methods, i.e., proportionate completion method, it is contrary to the above decisions, held to be ultra vires the Act and struck down as such.

11. I have considered the submissions advanced on both sides.

Discussion:

12. It is no matter of doubt that an assessee is entitled to adopt one or the other method of computation of its income if a particular method has not been made mandatory. The petitioner was applying the LIFO method of accounting as the standard for valuing the closing and opening stock up to 01.04.2017. Before 01.04.2017, there was no mandatory provision for adopting one or another method of Accounting Standards. The Statute also did not mandate only one method of valuing the closing and opening stock. The petitioners were free to adopt any one of the Accounting Standards as notified by the ICAI. The Parliament, after a wide range of consultation from all stakeholders and based on the recommendations of 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, 32237/2019 the Committee to maintain uniformity in accounting the income and valuing the stock, has made Clause 16 of ICDS (II) mandatory for the adoption of FIFO or weighted average cost method. This mandatory provision applies to all assessees, and, therefore, I do not find any substance in the submission of the learned Senior Counsel for the petitioners that making Clause 16 of ICDS (II) mandatory for adopting FIFO or weighted average cost method as the only method valuing the stock/inventory suffers from any vires of unreasonable classification or manifest arbitrariness as violative of Article 14 of the Constitution of India.