2009 (8) TMI 101 - SC - Income Tax

Assessing Officer made an addition to the value of the closing stock on the ground that the assessee had suppressed the work-in-progress and as a result the total income of the assessee stood increased - The assessee opted for the Kar Vivad Samadhan Scheme 1998 (KVSS) and paid the tax payable on the basis of the increased income - Accordingly the assessee herein moved an application under section 154 requesting the Assessing Officer to give consequential effect to the order passed earlier - The Assessing Officer rejected the application Held that application for rectification for consequential order is valid so AO ought not to have rejected the application for rectification u/s 154 Further it is the fundamental principle of accountancy that the figure of the closing stock of the earlier year has to from the opening stock of the next accounting year.

Summary

Issues:
Application under section 154 of the Income-tax Act, 1961 for rectification of return of income for the assessment year 1996-97.

Analysis:
The judgment delivered by S. H. Kapadia and Aftab Alam JJ. pertains to an application under section 154 of the Income-tax Act, 1961, seeking rectification of the return of income for the assessment year 1996-97. The Assessing Officer had made an addition to the value of the closing stock, resulting in an increase in the total income of the assessee. The assessee opted for the Kar Vivad Samadhan Scheme, 1998, and paid the tax based on the increased income. However, the application for rectification was rejected on the grounds of alleged suppression of work-in-progress. This rejection was upheld by the Commissioner of Income-tax (Appeals) and the High Court, leading to the filing of a civil appeal.

The Supreme Court found merit in the civil appeal, emphasizing the fundamental accounting principle that the closing stock of the earlier year forms the opening stock of the next accounting year. The Court noted that a declaration was filed under the KVSS Scheme based on the Assessing Officer's order, which was accepted by the designated authority after presumably obtaining the report. In light of these circumstances, the Assessing Officer should not have rejected the application under section 154. Therefore, the Court set aside the High Court's judgment and allowed the civil appeal filed by the assessee, with no order as to costs.

In conclusion, the judgment highlights the importance of adhering to accounting principles and ensuring that rectification applications are considered fairly, especially in cases where there is no intentional suppression of information. The decision provides clarity on the correct application of the law in such matters and emphasizes the need for proper assessment procedures to prevent unjust rejections of rectification requests.