Carry-forward loss rules after switching from compounding to regular assessment are limited to the first year of re-option.

Section 13(6) of the Kerala Agricultural Income-tax Act bars carry forward of loss and depreciation only for the assessment year in which an assessee reopts from compounding under section 13(1) to regular assessment under section 3. For later years, once the assessee continues under regular assessment, the normal carry-forward rule under section 12 applies. Depreciation remains claimable only on new assets acquired after the switch, not on assets held before the changeover. The stated conclusion was that the disallowance operated only for assessment year 2001-02, while carry forward to 2002-03 was permitted subject to the asset-based limitation on depreciation.

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Issues: Whether section 13(6) of the Kerala Agricultural Income-tax Act, 1991, which disables carry forward of loss and depreciation when an assessee reopts from compounding under section 13(1) to regular assessment under section 3, applies only to the first year of such switch and permits carry forward for the succeeding assessment year.

Analysis: Section 13(6) bars an assessee who exits the compounding scheme and opts for assessment under section 3 from claiming carry forward loss or depreciation for the year in which the switch is made. The disability is confined to that first year of re-option. Once that year is over, and the assessee continues under section 3, the normal rule of carry forward under section 12 applies for later years. Depreciation, however, is available only on new assets acquired in the relevant previous year after the switch, and not on assets acquired before the changeover.

Conclusion: The disallowance under section 13(6) applied only to assessment year 2001-02. The assessee was entitled to carry forward loss and unabsorbed depreciation from 2001-02 to 2002-03, subject to the limitation that depreciation could be claimed only on new assets acquired after the switch to regular assessment.

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