1998 (8) TMI 65 - HC - Income Tax

Registered Firm, Agricultural Income Tax, Reassessment, Hybrid System, Limitation, Financial Year

Issues Involved:
1. Validity of the reassessment order under the Kerala Agricultural Income-tax Act, 1991.
2. The method of accounting followed by the petitioner.
3. Bar of limitation for issuing reassessment notice.
4. Maintainability of the writ petition under Article 226 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Validity of the Reassessment Order:
The petitioner, a registered firm engaged in agricultural and plantation operations, challenges the reassessment order (exhibit P-9) as void, illegal, and without jurisdiction. The original assessment for the year 1986-87 was completed on December 14, 1987 (exhibit P-3). The reassessment was initiated by a notice dated February 27, 1992 (exhibit P-7), with the petitioner objecting to it (exhibit P-8). The reassessment was completed on October 31, 1992, determining an escaped income of Rs. 5,04,686.07 and fixing the total income at Rs. 6,59,200. The petitioner argues that the reassessment is based on a mere change of opinion, which is not permissible.

2. Method of Accounting Followed by the Petitioner:
The petitioner claims to have consistently followed a hybrid system of accounting, which was accepted by the authorities in the previous years (1984-85 and 1985-86). The petitioner provided exhibits P-1 and P-2 as evidence of the accepted method. The reassessment notice (exhibit P-7) stated that the petitioner had been following the mercantile system, leading to the alleged escapement of income. The petitioner contends that the hybrid system, which includes accounting for income received during the year and valuing stock at estimated values, was consistently followed and accepted by the respondent, making the reassessment on a different basis unjustified.

3. Bar of Limitation for Issuing Reassessment Notice:
The petitioner argues that the reassessment notice (exhibit P-7) was issued beyond the five-year period stipulated under section 41(2) of the Act. The relevant financial year for the assessment year 1986-87 ended on March 31, 1986, making the five-year period expire on March 31, 1991. Therefore, the notice issued on February 27, 1992, is beyond the permissible time limit. The respondent countered that the notice is within the time provided under section 35 of the Agricultural Income-tax Act, 1950, and section 41 of the Kerala Agricultural Income-tax Act, 1991.

4. Maintainability of the Writ Petition under Article 226:
The respondent contended that the writ petition is not maintainable as the petitioner has an alternate remedy by way of an appeal under section 72 of the Kerala Agricultural Income-tax Act, 1991. However, the court noted that the writ petition was filed in 1992 and has been pending for five years. Given this, it would not be proper to dismiss the petition on the ground of alternate remedy at this stage. The court, therefore, accepted the maintainability of the writ petition.

Judgment:
The court quashed the reassessment order (exhibit P-9) and directed the respondent to complete the assessment afresh in accordance with the law and the observations made in the judgment. The respondent is to consider the method of accounting followed by the petitioner (hybrid system) independently and based on exhibits P-4 to P-6 profit and loss accounts, without being influenced by the previous notations of "cash" or "mercantile" systems in the assessment orders. The petitioner is allowed to adduce further evidence in support of its contention. The original petition is allowed, with no order as to costs.

← Previous Next →