2005 (2) TMI 102 - HC - Income Tax

Summary

Issues:
1. Reopening of assessment under section 42 of the Kerala Agricultural Income-tax Act, 1991.
2. Exclusion of value of opening stock of crop sold during the previous year relevant for the assessment year 2001-02.

Issue 1: Reopening of Assessment under Section 42:
The petitioner, a partnership firm engaged in agricultural operations, opted for payment of tax at a compounded rate under section 13 of the Act. The assessment for the year 2001-02 was reopened due to disallowance of opening stock and depreciation. The Assessing Officer revised the assessment, citing violation of section 13(6) of the Act. The petitioner contested the disallowance of opening stock but not depreciation. The court found that the officer had the authority to rectify the assessment under section 42 as the original assessment violated section 13(6) by allowing depreciation. The officer was also entitled to rectify the assessment regarding the opening stock as it violated section 40(1) by not following the method of accounting regularly employed by the assessee. The court upheld the reassessment under section 42 and section 41, rejecting the challenge against the Tribunal's order.

Issue 2: Exclusion of Value of Opening Stock:
The key contention was whether the assessee was entitled to exclude the value of opening stock of crop sold during the previous year relevant for the assessment year 2001-02. The petitioner relied on section 13(6) of the Act, arguing that on switching to regular assessment, there should be no assessment of opening stock. However, the Government pleader argued that the system of accounting regularly employed by the assessee under section 40(1) must be followed. The court noted that until 1995-96, the assessee followed the cash system of accounting. The Assessing Officer correctly assessed the opening stock sold during the previous year based on the cash system of accounting. The court emphasized that the system of accounting followed by the assessee determines the assessment method. The court rejected the petitioner's argument that there was a deemed assessment of the entire crop of the previous year under section 13(1), stating that it only discharged liability for that year. The court ruled against the assessee, upholding the assessment of the opening stock and dismissing the revision case.

This judgment clarifies the authority of the Assessing Officer to rectify assessments under section 42 and highlights the importance of following the system of accounting regularly employed by the assessee in determining agricultural income tax assessments.