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Commissioner of Income-tax Vs. Sri Hari Prosad Lohia - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 617 of 1979
Judge
Reported in(1983)35CTR(Cal)232,[1983]143ITR276(Cal)
ActsIncome Tax Act, 1961 - Sections 3(4), 143(3), 154 and 246
AppellantCommissioner of Income-tax
RespondentSri Hari Prosad Lohia
Appellant AdvocateH.M. Dhar and ;Sunil Mukherjee, Advs.
Respondent AdvocateR.N. Bajoria and ;Manas Banerjee, Advs.
Cases ReferredJ.K. Synthetics Ltd. v. O.S. Bajpai
Excerpt:
- .....there was a bill before parliament which might have some effect on the computation of tax in the changed accounting year if the bill was passed in time. the tribunal has pointed out that the ito must have been aware of the bill and yet permission was given to change the year of account. in that case, the ito, who passed the assessment order, has held that his predecessor's order was a conditional order and the assessee could not be allowed to change the period of accounting. a similar case came up before the allahabad high court in the case of j.k. synthetics ltd. v. o.s. bajpai, ito : [1976]105itr864(all) . the facts of that case has a very close resemblance to the facts of this case. in that case also the ito had allowed the assessee to change the year of account on certain.....
Judgment:

Suhas Chandra Sen, J.

1. At the instance of the Revenue the two following questions of law have been referred to us by the Tribunal under Section 256(1) of the I.T. Act, 1961:

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that an appeal lies against the order of the Income-tax Officer under Section 3 of the Income-tax Act, 1961 ?

2. Whether the Tribunal was right in holding that once the Income-tax Officer gave permission to change the previous year, the same permission cannot be revoked by the subsequent Income-tax Officer, having regard to the provisions of Section 3(4) of the Income-tax Act, 1961, and that the revenue authorities were wrong in withdrawing the grant of change in previous years relating to the assessment years 1973-74 and 1974-75?'

2. This case relates to the assessment years 1973-74 and 1974-75. The assessee, Had Prosad Lohia, wrote a letter dated March 14, 1973, to the ITO stating that he had been following Diwali year up to and including the assessment year 1972-73 as his accounting year and that his sources of income were from his shares of East India Electricals and proprietorship of a firm styled, Prabhat Textiles, remuneration and interest and dividend. The firm in which he was a partner followed the financial year as its accounting year and that the accounts of the proprietorship business, Prabhat Textiles, were closed on the 31st March, every year. In other words, it was following the financial year as its accounting year. The assessee submitted before the ITO that since his accounting year was Diwali year he felt very much inconvenienced in making adjustments in respect of various incomes and, therefore, he requested the ITO to note that he proposed to change his accounting year from Diwali to the financial year and that he would change the accounting year relevant to the assessment year 1973-74 to the financial year resulting in the position that he would be assessed for a period of 17 months. He further submitted that as a result of the change in the accounting year, there would be no loss of revenue to the exchequer. The ITO, by letter dated March 27, 1973, passed an order under Section 3(4) of the Act laying down the following two conditions:

'(1) The assessee should not object to be assessed for 17 months for the assessment year 1973-74, and

(2) There will also be no loss of revenue if the change of accounting year is permitted.'

3. However, the successor ITO wrote a letter to the assessee on January 15, 1976, by which he intimated that for the reasons stated therein he was not in a position to allow the assessee to alter the previous year relevant to the assessment year 1973-74. The ITO computed the income of the assessee at Rs. 80,880 for the assessment year 1973-74, by including capital gain on sale of shares of East India Commercial Co. Pvt. Ltd. and Cutler Hammer India Ltd., being taken on protective measure, as these transactions were done after the close of Diwali 2029. For the assessment year 1974-75, the ITO computed the income of the assessee at Rs. 4,64,620 by including capital gain from sale ofshares of Cutler Hammer India Ltd. and East India Commercial Co. Pvt. Ltd.

4. The AAC confirmed the order of the ITO; thereupon the assessee appealed to the Tribunal. It was contended on behalf of the assessee that an appeal lay against the order of the AAC and the assessee was entitled to change the accounting year. It was further argued that in any event an order had been passed by the ITO and subsequently another ITO could not change that order. It was contended on behalf of the Revenue on the other hand that the order under Section 3(4) of the Act was not appealable and that having regard to the decision of the Delhi High Court in the case of Dalmia Cement (Bharat) Ltd. v. ITO : [1973]88ITR21(Delhi) , the orders of the revenue authorities should not be disturbed. The Tribunal, after considering the case law and the facts of the case, held that the appeal preferred by the assessee could not be dismissed on the ground of maintainability. The Tribunal further held that once the assessee was given permission to change the year of account by one ITO, another ITO subsequently could not revoke that order and in the facts and circumstances of the case the assessee was entitled to change the accounting year followed by the assessee.

5. At the instance of the Commissioner of Income-tax, the two questions set out earlier have been referred by the Tribunal under Section 256(1) of the I.T. Act, 1961, to this court.

6. So far as the first question is concerned, the answer appears to be fairly simple. An assessment order under Section 143(3) was passed by the ITO and in that order the ITO held that the assessee was not entitled to change the accounting period followed by the assessee. In the assessment order itself he has stated the accounting period as 2029 Diwali. Under Section 246(c), a right of appeal has been given where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed.

7. In this case at the assessment stage the assessee submitted a return and produced his books of account for the year ending 31st March, 1973. The ITO held that this could not be accepted and 'the change of the accounting year is not permitted for this assessment year'. In order to compute the amount of income for any assessment year and also the amount of tax payable by the assessee, it is necessary to determine what is the accounting period. The assessee's case was that from this assessment year he was changing his system of accounting from Diwali year to the financial year. The ITO has held that the assessee was not entitled to change the accounting period. The decision of the ITO on this pointformed an integral part of the assessment order itself. The computation of the income that the ITO did was on the basis of his determination of the accounting period of the assessee. The amount of tax payable by the assessee was also calculated accordingly. Determination of the accounting period is an integral part of the assessment process and an appeal cannot be rejected on the ground that it is not an order under Section 143(3) of the I.T. Act. In order to decide what is the correct income of the assessee, it has to be seen what is the accounting period and the amount of income earned by the assessee during that accounting period.

8. The second question also does not pose any great difficulty. There is no dispute that the ITO in charge of the assessment of the assessee had granted permission to the assessee for changing the accounting year. It is true that the Tribunal has pointed out that there was a Bill before Parliament which might have some effect on the computation of tax in the changed accounting year if the Bill was passed in time. The Tribunal has pointed out that the ITO must have been aware of the Bill and yet permission was given to change the year of account. In that case, the ITO, who passed the assessment order, has held that his predecessor's order was a conditional order and the assessee could not be allowed to change the period of accounting. A similar case came up before the Allahabad High Court in the case of J.K. Synthetics Ltd. v. O.S. Bajpai, ITO : [1976]105ITR864(All) . The facts of that case has a very close resemblance to the facts of this case. In that case also the ITO had allowed the assessee to change the year of account on certain conditions. One of the conditions was that the said change should not result in the reduction of tax liability including surtax. In the assessment order it was held that this condition was not fulfilled and, therefore, the assessee should not be allowed to change his year of account. The Division Bench of the Allahabad High Court held that this condition was an ambiguous condition and wholly superfluous. In that case it was observed (p. 876):

'It is not clear as to what exactly the Income-tax Officer meant by saying that the change in the previous year should not result in the reduction of tax liability including the surtax. That, in fact, is not a condition to be imposed upon an assessee but is a consideration which has to be kept in mind by the Income-tax Officer while permitting the change of the previous year. He has to see that as a result of the change the assessee does not gain an undue advantage by way of reduction in tax liability. If he apprehends that there will be a reduction in tax liability, he can impose suitable conditions to guard against it. But to say that there will be no reduction in tax liability as a result of the change in the previous year is by itself not a condition.'

9. In this case the assessee was given permission to change the accounting period by one ITO who had jurisdiction over the assessee's case at the material time. That order was communicated to the assessee and had become final and conclusive. His successor in office cannot summarily reverse that decision while passing the order of assessment. Detailed provision has been made in the I.T. Act for rectification or revision of an order passed by the ITO. But in this case the ITO has hot invoked Section 154. In any event, there is no mistake apparent from the record which could be rectified under Section 154.

10. In that view of the matter the decision of the ITO to treat the Diwali year 2029 as the accounting period for the assessment year 1973-74 is clearly erroneous and without jurisdiction.

11. In that view of the matter both the questions are answered in the affirmative and in favour of the assessee.

12. In the facts and circumstances of the case, parties will pay and bear their own costs.

Sabyasachi Mukharji, J.

13. I agree.


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