As per the tax department’s position, the expenses would be disallowed, but following the ITAT ruling it would be debated whether the investment was strategic, or the dividend income was incidental and the shares were merely stock in trade in the hands of the investor when the dividend income was received. Tax experts, however, clarified that ITAT ruling does not contradict the SC judgement, but adds on to it. Valuation of Inventories under Income tax Act, 1961. Introduction. Under the Income tax Act, 1961 assessee is required to maintain books of accounts. Assessee can maintain books of accounts under cash basis or mercantile basis of accounting. Assessee should consistently follow the method of accounting.