Income Tax Ordinance, 2001

CHAPTER-III

TAX ON TAXABLE INCOME PART IV HEAD OF INCOME: INCOME FROM BUSINESS Division IV Tax Accounting

From: 2023-07-01 - To: 0000-00-00 35. Stock-in-trade.- (1) For the purposes of determining a person’s income chargeable to tax under the head “Income from Business” for a tax year, the cost of stock-in-trade disposed of by the person in the year shall be computed in accordance with the following formula, namely:- (A + B) - C where - A is the opening value of the person’s stock-in-trade for the year; B cost of stock-in-trade acquired by the person in the year; and C the closing value of stock-in-trade for the year. (2) The opening value of stock-in-trade of a person for a tax year shall be - (a) the closing value of the person’s stock-in-trade at the end of the previous year; or (b) where the person commenced to carry on business in the year, the fair market value of any stock-in-trade acquired by the person prior to the commencement of the business. (3) The fair market value of stock-in-trade referred to in clause (b) of sub-section (2) shall be determined at the time the stock-in-trade is ventured in the business. (4) The closing value of a person’s stock-in-trade for a tax year shall be the lower of cost or 1[net realizable] value of the person’s stock-in-trade on hand at the end of the year. (5) A person accounting for income chargeable to tax under the head “Income from Business” on a cash basis may compute the person’s cost of stock-in- trade on the prime-cost method or absorption-cost method, and a person accounting for such income on an accrual basis shall compute the person’s cost of stock-in-trade on the absorption-cost method. (6) Where particular items of stock-in-trade are not readily identifiable, a person may account for that stock on the first-in-first-out method or the average-cost method but, once chosen, a stock valuation method may be changed only with the written permission of the Commissioner and in accordance with any conditions that the Commissioner may impose. (7) In this section,- “absorption-cost method” means the generally accepted accounting principle under which the cost of an item of stock-in-trade is the sum of direct material costs, direct labour costs, and factory overhead costs; “average-cost method” means the generally…