1. This is an appeal by the department against the order of the Commissioner (Appeals) granting the claim of depreciation to the assessee for the assessment year 1979-80. This is opposed by the assessee.
2. By its letter dated 20-9-1977 the assessee-company asked for change of accounting year. By his letter dated 15-12-1977, the ITO informed the assessee that 'the change of accounting year is allowed from 31-3-1978 to 30-6-1978 to start with'. The change of accounting year was allowed 'subject to the condition that it may be withdrawn in any of the subsequent years, if it is found, the change of accounting year leads to loss to the revenue'. By subsequent letter dated 20-12-1977 the same ITO informed the assessee that 'the period of 15 months from 1-4-1977 to 30-6-1978 is being divided into two assessment years, relevant accounting years being 1-4-1977 to 31-3-1978 and 1-4-1978 to 30-6-1978 for the assessment years 1978-79 and 1979-80, respectively'.
He advised it to make payment under Section 210 of the Income-tax Act, 1961 ('the Act') in accordance with the estimate filed on 14-12-1977.
He, however, stated that the change in the accounting year was allowed subject to the condition that 'proportionate depreciation shall be allowed only for the accounting year relevant to the assessment year 1979-80, i.e., from 1-4-1978 to 30-6-1978 (one-fourth of the normal depreciation)'. In accordance with this direction of the ITO, the assessee submitted return for three months, i.e., 1-4-1978 to 30-6-1978, for the assessment year 1979-80 and also claimed one-fourth of the depreciation allowable for the year. Before the Commissioner (Appeals) it was, however, contended that the condition of granting one-fourth of the claim for depreciation was invalid and normal depreciation should be allowed. The Commissioner (Appeals) accepted this contention and held that 'the appellant would be entitled to normal depreciation to the full extent allowable without any restriction with reference to the number of days for which the concern worked'. Being aggrieved, the department preferred this appeal.
3. It was contended by the departmental representative that the assessee accepted the condition imposed by the ITO by his subsequent letter dated 20-12-1977 and filed return in accordance with the said condition. As such, he contended, that the assessee could not turn back and challenge this condition imposed by the ITO. He also contended that when in compliance with this condition, the assessee itself claimed depreciation at the rate of 25 per cent, it was estopped from challenging the condition. He also drew our attention to the proviso to Rule 5(1) of the Income-tax Rules, 1962 ('the Rules') and contended that as a corollary to the proviso of this section, depreciation proportionate to the period during which the machinery was used and not full depreciation for the entire period should be granted. He also contended that both the letters of the ITO dated 14-12-1977 and 20-12-1977 should be read together. These contentions were opposed by the authorised representative for the assessee who contended that the condition imposed by the letter dated 20-12-1977 was an additional condition which could be imposed only in exercise of the powers under Section 154 of the Act, but the same is invalid because it was not imposed by an order under Section 154. He further contended that the condition about the proportionate depreciation imposed by the letter dated 20-12-1977 and the condition regarding withdrawal of the permission in case the change of accounting year was found to lead to loss of revenue, are invalid. For this purpose, he relied on the decisions in the cases of J.K. Synthetics Ltd. v. O.S. Bajpai, ITO  105 ITR 864 (All.) and CIT v. Sri Hari Prosad Lohia  143 ITR 276 (Cal.).
4. We have already stated that by his letter dated 14-12-1977 the ITO allowed change in the accounting year 'subject to the condition that it may be withdrawn in any of the subsequent years, if it is found, the change of accounting year leads to loss to the revenue'. The authorised representative for the assessee challenged this condition as invalid and for this purpose relied on the case of J.K. Synthetics Ltd. (supra). The departmental representative contended that this condition is valid and should not be disturbed. But we are of the opinion that we should not record any opinion as to the validity or otherwise of this condition because neither the department nor the assessee challenged this condition in this appeal. The grievance of the assessee before the authorities below was regarding depreciation and as such it involves the condition laid down by letter dated 20-12-1977. We make it clear that we do not think that we are required to pass any opinion as to the condition imposed by the letter dated 14-12-1977. The validity or otherwise of this condition may be examined in a suitable proceeding, if necessary.
5. Now we come to the condition imposed by the letter dated 20-12-1977.
It runs as follows : The change in the accounting year is allowed subject to the condition that proportionate depreciation shall be allowed only for the accounting year relevant to the assessment year 1979-80, i.e., from 1-4-1978 to 30-6-1978 one-fourth of the normal depreciation.
According to the authorised representative for the assessee, it is an additional condition imposed subsequent to the granting of permission for change of accounting year and as such is invalid for not being imposed in accordance with law. According to the departmental representative, this letter dated 20-12-1977 and the letter dated 14-12-1977 should be read together and it should be held that they were one and the change of accounting year was allowed on the conditions mentioned in both the letters. We are unable to accept this contention.
By the letter dated 14-12-1977, the change of accounting year was allowed and the only condition imposed was with regard to the reservation of power to withdraw the permission in case of loss to the revenue. This is apparent from the words : 'the change in accounting year is allowed from 31-3-1978 to 30-6-1978 to start with'. It could at best be accepted that the statements in the earlier part of the letter dated 20-12-1977 constitute a clarification of the periods which will form the assessment years 1978-79 and 1979-80. But it cannot by any stretch of imagination be held that the condition regarding the proportionate depreciation was clarification of the accounting period as mentioned in the letter dated 14-12-1977. We are satisfied that this is an additional condition imposed subsequent to the granting of the permission to change the accounting year. But in the case of Sri Hari Prosad Lohia (svprd), the Hon'ble Calcutta High Court laid down that' detailed provision has been made in the Income-tax Act for rectification or revision of an order passed by an ITO. But, in the instant case, the ITO had not invoked Section 154 and there was no mistake apparent from the record which could be rectified under Section 154.' In our opinion, there is no mistake in the instant case and the condition regarding proportionate depreciation imposed by the letter dated 20-12-1977 was an additional condition. As such, the ITO was not entitled to impose such condition by letter dated 20-12-1977. 6. There is another aspect which determines the validity of imposition of this condition. In the case of J.K. Synthetics Ltd. (supra) the Allahabad High Court laid down that : ...sub-section (4) of Section 3 provides that if an assessee has already chosen a previous year he shall not alter it without the permission of the Income-tax Officer. It is under this provision that the company applied for permission to change its previous year and the Income-tax Officer allowed the change on certain conditions, which we have already reproduced above. It is not disputed that the conditions which the Income-tax Officer can impose must be valid and legal besides being reasonable. He cannot impose conditions which are contrary to the provisions of the Income-tax Act.(p. 875) So, in order to be binding the condition regarding the proportionate depreciation, has to be valid according to the provisions of the Act or (the Rules made thereunder). The departmental representative was unable to point out any provision in the Act or in the Rules except the proviso to Rule 5(1) which reads as follows : Provided that in a case where the assessee has been allowed to vary the meaning of the expression 'previous year' in respect of any business or profession under Sub-section (4) of Section 3 and, thereby, his income from such business or profession for a period of thirteen months or more is included in his total income of any previous year, the allowance referred to in this sub-rule, calculated in the manner stated hereinabove, shall be increased by multiplying it by a fraction of which the numerator is the number of complete months in such previous year and the denominator is twelve.
It is apparent from the proviso that if by chance any accounting year comprises of a period of 13 months or more, depreciation allowance shall be increased proportionately. But we do not think that it permits the department to apply it in a reverse manner and reduce the depreciation proportionate to the number of months comprising the accounting year. Under Rule 5(1) depreciation allowance for the entire year is available at the percentage specified in the second column of the Table in Part I of Appendix I to the Rules. The following words in this sub-rule 'the written down value of such of the assets aforesaid as are used for the purposes of the business or profession of the assessee at any time during the previous year' are sufficient to show that depreciation at the percentage mentioned in second column of the Table in Part I of Appendix I is available though the machinery is used for part of the year. The words 'at any time' are sufficient to show that depreciation at the rate mentioned in the Table is available even though the machinery is used for any length of time during the previous year. So, the assessee was entitled to full depreciation at the rate mentioned in the Table under Rule 5(1). The ITO had no authority to reduce the said depreciation allowance to one fourth. For this reason also, this condition imposed by the letter dated 20-12-1977 is invalid.
Though the assessee complied with this invalid condition, the said fact does not validate the imposition of an invalid condition by the ITO and the assessee cannot be precluded from challenging the validity of the said condition. So we do not think that the assessee is estopped from challenging the validity of this condition imposed by the letter dated 20-12-1977. In such circumstances, it cannot be said that the order of the Commissioner (Appeals) is incorrect. We, therefore, decline to interfere with the impugned order which is hereby confirmed.