Sambasiva Rao, Actg. C.J.
'Whether, on the facts and in the circumstances of the case, the assessee was entitled to close its accounts on November 5, 1962, for the assessment year 1963-64 without obtaining the ITO's consent as laid down in Section 3(4) of the I. T. Act, 1961 ?'
1. This is the question which has been referred to the High Court by the Tribunal.
2. The assessee is a registered firm. It used to carry on business in manufacture and sale of gold and silver jewellery. It filed a return for the accounting year commencing from November 5, 1961, and ending with November 5, 1962. The ITO took objection to this, pointing out that according to the partnership deed of the firm the books of account were to be closed on Diwali day every year and that the Diwali day during that year fell on October 26, 1962. The assessee closed his accounts on a later day without the permission of the ITO under Section 3(4) of the I.T. Act. The assessee in reply to a letter from the ITO explained that right from the beginning his practice was to close the accounts on some day round about Diwali and that it was being assessed on that basis all along. This explanation did not find acceptance with the ITO. He, therefore, took the trading results only up to October 26, 1962, and completed the assessment. In appeal, the ARC rejected the assessee's contention holding that the firm could not deviate from the terms of the partnership deed regarding the closure of accounts. In further appeal before the Tribunal, it was found that though there was a mention of Diwali day in the partnership deed, from the conduct of the assessee, which was accepted by the department from year to year, it was clear that the books of accounts were not closed even for a single year on the Diwali day and that, on the contrary, from the several dates given in the various assessment orders it was clear that the books of account were closed consistently on a day different from the Diwali day. The Tribunal further observed that there was nothing to show that the assessee had altered the date of closing of accounts with a view to obtain any advantage. On the basis of this reasoning the Tribunal found that there was no change in the accounting year. It is from this order the above question was referred to this court.
3. Before we answer the question, we would do well in referring to Section 3 of the I.T. Act, That section defines 'previous year'. Very many contingencies were brought within the ambit of the expression 'previous year'. One of those contingencies is that 'if the accounts of the assessee have been made up to a date within the financial year then, at the option of the assessee, the twelve months ending on such date'. Sub-section (4), however, says :
'Where in respect of a particular source of income or in respect of a business or profession newly set up, an assessee had once exercised the option under Clause (b), or Sub-clause (ii) of Clause (d), or Sub-clause (i) of Clause (e) of Sub-section (1) or has once been assessed, then, he shall not, in respect of that source, or, as the case may be, business or profession, be entitled to vary the meaning of the expression 'previous year' as then applicable to him, except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose.' From a reading of Section 3 in general, and Sub-section (4) in particular, two features emerge. One is that the assessee has the option to fix the 12 months preceding the assessment year as the financial year. The second point that emerges is that if he has exercised that option or has once been assessed, then he shall not change it excepting with the consent of the ITO.
4. The facts as found by the Tribunal do not come within the ambit of Sub-section (4). The finding of fact clearly is that though Diwali day has beenmentioned in the partnership deed, all along the assessee has been closinghis accounts, without any exception, on a day round about Diwali day andnot precisely on Diwali day. Further, the I.T. department has been assessing it accordingly. Thus, it shows that the assessee has exercised theoption in favour of a day round about Diwali day for closing its accountsand also that it has been, time and again without exception, assessed by thedepartment accordingly. In such a case, there is no need to obtain theconsent of the I.T. department to close its accounts on any particular day ifit is round about Diwali day. By virtue of this option which has beenfully demonstrated by the invariable practice and also on account of thefact that all along it has been so assessed by the department, it is clearthat the need for securing the consent of the ITO under Sub-section (4) of Section 3did not arise. So, the answer to the question is that the assessee is entitledto close its accounts on November 5, 1962, without the consent of the ITO under Section 3(4).
5. The question is thus answered in the affirmative and in favour of the assessee. The assessee will have its costs from the revenue. Advocate's fee Rs. 250.