G. Santhanam, Accountant Member - (1.) THIS is an appeal by the revenue relating to the assessment year 1982-83.
(2.) The assessee is a closely held company and is engaged in the business of manufacture and sale of tread rubber. It also undertakes mixing and mastication of rubber. Its previous year ended on 30th June. In September 1981 it sought permission of the Income-tax Officer to close its accounts for a period of 15 months from 1-7-198!) to 30-9-1981. This request was rejected by the Income-tax Officer on 12-11-1981. Against this order, the assessee preferred a revision petition to the Commissioner of Income-tax, Cochin. The Commissioner of Income-tax in his order dated 7-5-1983 under Section 264 of the Income-tax Act, 1961, stated as follows:- 5. The assessee has been heard. It was pointed out that the change of the previous year would not prejudice the interests of revenue. The Income-tax Officers denial was not based on any reason that the interests of revenue were prejudiced. The Income-tax Officer could have well imposed reasonable conditions to protect the taxation for the assessment year 1982-83 of the limited company or the taxation of the major shareholders for purposes of Income-tax and Wealth-tax for the assessment year relevant to the previous year ending on 30-6-1981. There were three major shareholders, Sri George Varghese, Master Paulose Varghese and Master R.F. Varghese (the two being minors). 6. Reliance was placed on a decision of the Bombay High Court in the case of Bennet Coleman (P) Ltd. 7. The assessee's petition has much force in it. The Income-tax Officer has not applied his mind to Section 3(4) of the Income-tax Act. Whether the assessee avoided the payment of advance tax for the assessment year 1979-80 is irrelevant. It could have been a factor to be taken into account while allowing a change in the previous year on the first occasion. The assessee cannot file a return of income for the year ending on 30-6-1981 unless the Income-tax Officer insists on the same. During the assessment proceedings under Section 143, the Income-tax Officer would not be able to take a fresh decision in view of the Income-tax Officer's order dated 12-11-1981 on the subject of the previous year. It, therefore, seems appropriate to me that the Income-tax Officer's refusal dated 12-11-1981 should be set aside. The assessee is allowed to file a return as it likes. While deciding the assessment for the assessment year 1982-83, the Income-tax Officer should pass an order under Section 3(4) of the Income-tax Act and thereafter finalise the assessment of income. The assessee had filed the return of income for the assessment year 1982-83 for a period of 15 months from 1 -7-1980 to 30-9-1981. The Income-tax Officer, on receipt of the directions of the Commissioner of Income-tax cited (supra) reconsidered the application of the assessee for change of previous year from June to September, rejected the assessee's request for the change of previous year and took the previous year as having ended on 30th June, 1981. He made adjustments to the income of the assessee which was admitted by the assessee for a period of 15 months. After making necessary adjustments the Income-tax Officer determined the total income of the assessee on proportionate basis for a period of 12 months ending 30th June, 1981. The assessee carried the matter in appeal before the CIT (Appeals). The CIT (Appeals) held that the only reason adduced by the Income-tax Officer for rejecting the request of the assessee was that if such a change was allowed, The assessee would claim deduction for investment allowance and additional depreciation against the profits for 15 months, which would substantially erode the assessable income of the assessee. The related reason for refusing the request of the assessee was that the impact of such erosion will have its effect on the surtax liability of the assessee for the assessment year 1982-83. The learned CIT (Appeals) felt that the loss of revenue in a particular year on account of the change in the previous year cannot be the sole criterion for refusing to grant the prayer of the assessee. He further held that the assessee was a limited company and the tax rates for this year and the following years are more or less stable and the allowances such as investment allowance, depreciation etc. are themselves statutory deductions which have to be allowed this year or next year and, therefore, The Income-tax Officer erred in holding that there will be substantial loss of revenue. The CIT (Appeals) did not also see any merit about the reduction of sur-tax liability if such a change was allowed as contended by the Income-tax Officer. According to the CIT (Appeals) if sur-tax was paid by the assessee in case the status quo of the previous year was kept intact, the assessee would certainly avoid payment of sur-tax in the succeeding previous year on account of heavy investment allowance and depreciation charges and thus there was no merit in the Income-tax Officer's contention. Further he held that as a result of the refusal to accord change of the previous year, the apportionment of income has resulted in an unscientific division as between the two periods. Therefore, the CIT (Appeals) set aside the order of the Income-tax Officer with a direction to grant the assessee's request for a change in the previous year and complete the assessment on the basis of 15 months period. The revenue is on appeal. Sri C. Abraham, the learned senior departmental representative submitted that the assessee had not taken the previous consent of the Income-tax Officer before it closed the accounts on 30-9-1981. The only ground on which the change of previous year was asked for was to enable the assessee to file statements with the Government on subsidies received. It is not such a heavy reason as to necessitate the change of the previous year. The Income-tax Officer had also noticed that the assessee was changing the previous year quite frequently. Originally, it closed its accounts by 31st March. Then shifted its accounts to 30th June. Thereupon, the assessee wanted the previous year to end on 30th September. In the circumstances, the learned Income-tax Officer refused to grant change of the previous year. The Commissioner of Income-tax had only set aside the order of the Income-tax Officer and directed him to consider the application of the assessee by his order dated 7-5-1983. This was misunderstood by the assessee for a direction issued in its favour authorising the change of previous year. In this connection, Sri Abraham took us through the order of the Commissioner of Income-tax and submitted that from the order it cannot be read that the Commissioner had authorised the change of previous year as requested by the assessee. Subsequently, the Income-tax Officer after considering the application of the assessee as per the direction of the Commissioner felt that if such a change was allowed it would be detrimental to the interests of the revenue and, therefore, declined to accede to the request of the assessee. The CIT (Appeals) erred in holding that there was no loss of revenue because of the rate of taxes remaining more or less the same in the case of companies. He further erred in holding that even if there was a loss to the exchequer the Income-tax Officer is bound to grant the prayer of the assessee. In this connection the learned senior departmental representative referred to the workings filed by the revenue and emphasised that as a result of the change, the revenue has suffered loss of tax.
(3.) SRI Abraham, the learned senior departmental representative further submitted that before the end of the previous year, the assessee should have asked for the change. This was not done as the application was obviously made on 25-8-1981, i.e., after 65 days from the end of 30th June, 1981, on which date the assessee should have closed the accounts. It was the further submission that the order passed under Section 3(4) of the I.T. Act, 1961 either granting or declining to grant the change, of previous year is not an order appealable and the CIT (Appeals) erred in having entertained the appeal.;