C.I.T. JDR. vs. M/S PUNJAB GAS CYLINDER LTD. LDH.

Income-Tax Appellate Tribunal, Chandigarh Bench, has referred following question of law for opinion of this Court arising out of its order dated 20.7.1995 in ITA No. 167 of 1990 relating to assessment year 1985-86:- “(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee had a right to exercise option to adopt its previous year from 1.1.1983 to 30.6.1984 under Section 3 (1) (e) (i) and was not required to obtain permission under Section 3 (4) of the Income-tax Act, on the ground that business had commenced with effect from 1.12.1983”.

The assessee is engaged in the business of manufacturing of cylinders. It filed return for the assessment year in question by treating the previous year to be from 1.12.1983 to 30.6.1984. The Assessing Officer held that this amounted to change of previous year without permission under Section 3 (4) of the Act and on that ground claim for loss for that year was rejected. The plea of the assessee was that since new business of the assessee had commenced on 1.12.1983, provision under Section 3 (4) was not applicable, as the assessee had a right of choice under Section 3 (1) (e) (i). The Tribunal upheld the plea of the assessee with the following observations:- “In the present case, the only controversy to be determined is whether the assessee did commence business w.e.f. 1.12.1983? If it was so, the assessee had a right to exercise option in respect of adoption of the previous year u/s 3 (1) (3) (i) of the Act. There was no other source of income prior to 1.12.1983. There was no question of any new source of income in the hands of the assessee. The ld. Counsel has explained that it was only by mistake that the assessee while explaining justification for the change in the previous year, took the plea that it was a new source of income. But that plea should not damage the assessee's case, on the basis of actual facts. This was also pointed out by the ld. counsel that even if the previous year adopted by the assessee was not acceptable and the accounting period was treated as having ended on 31.12.1983 to 31.12.1984, loss could have been determined and allowed to be carried forward accordingly. By way of alternative plea, the ld. Counsel has contended that the loss upto the period 31.12.1984, should have been allowed. It is also explained that the loss from 1.1.1983 to 31.12.1983 had been shown in the books of account at Rs. 1,63,080/-. Loss from 1.3.1983 to 31.12.1983 had been shown in the books of account at Rs. 8,66,671/-. Loss from 1.1.1984 to 31.12.1984 had been shown at Rs. 18,02,848/-. The plea of the ld. Counsel is that if the loss upto 30.6.1984 was not allowed after rejecting the assessee's plea. In regard to the adoption of previous year, the loss should have been allowed, treating the accounting year having been closed on 30.12.1984. But that has also not been allowed. In any, 1986-87, the year ending has been shown by the assessee as 30.6.1985, and that has been accepted. In view of this also, the ld. counsel has claimed that the revenue, by its very conduct, has allowed the previous year adopted by the assessee in subsequent assessment years. We are in agreement with the ld. counsel that no misc. income had been shown at all in any of the three earlier years and there was no question of having any source of income for those years. We also find substance in the assessee's plea that there was not net source of income, though it was explained mistakenly before the A.O. That from 1.12.1983, the assessee had started earning income from a new source. Since the facts are said to be otherwise, the assessee's mistaken belief is said to be otherwise, the assessee's mistaken belief is said to be of no relevant and of no consequence. Looking to the entire facts, we are of the view that when the business had commenced w.e.f. 1.12.1983, the assessee-company had a right to exercise the option to adopt a previous year u/s 3 (1) (e) (i) of the Act. We, therefore, accept the assessee's plea that the claim of loss shown upto 30.6.1984, has to be allowed, treating the 'previous year' as ending on 30.67.1984.”

We have heard learned counsel for the parties and perused the record.

Learned counsel for the appellant has placed reliance on Commissioner of Income-tax vs. Ravinder Kumar (1989) 180 ITR 203 (P&H) wherein business not being new business, it was held that choice of previous year without permission could not be exercised. This judgment is clearly distinguishable as in the present case, the business of the assessee has been held to be new business.

In view of reasons given by the Tribunal, it stands established that the business of the assessee commenced on 1.12.1983 and in such a situation the Tribunal was justified in holding that no prior permission was required under Section 3 (1) (e) (i). The question referred, thus, has to be answered against the revenue and in favour of the assessee.

Reference is disposed of. (ADARSH KUMAR GOEL) JUDGE November 13, 2009 (GURDEV SINGH ) prem