- (1.) THE Income Tax Appellate Tribunal, Allahabad has referring question of law under section 256(1) of the Income -tax hereinafter referred to as 'the Act' for opinion to this Court: 'Whether on the facts and in the circumstances of the case, Appellate Tribunal was justified in upholding the order of the C directing the Income Tax Officer to compute the assessee's income in acco the previous year adopted by the assessee?' Briefly stated the facts giving rise to the present reference as follows :
(2.) THE reference relates to the assessment year 1978 -79. Duri year relating to the assessment year 1976 -77, the respondent -firm underwent a change in the constitution with effect from 2 -11 -1975 firm was being reconstituted the partners decided to close the basis of Diwali year instead of financial year which was be before. The Income Tax Officer did not accept the change holding that the department had not allowed it. He completed the assessments for assessment years 1976 -77 and 1977 -78 by making several adjustments as a consequence of the non -acceptance of the change in the previous year. He did the same in respect of the assessment year in question also. However, in appeal the Commissioner (Appeals) following the order passed by the Tribunal for the assessment years 1976 -77 and 1977 -78 directed the Income Tax Officer to compute respondent's income in accordance with the previous year adopted by the respondent. Revenue's appeal before the Tribunal has failed. We have heard Shri A.N. Mahajan, learned Standing counsel for the revenue and Shri V.K Rastogi, appearing for the respondent -assessee. We find that the Tribunal has relied upon its earlier order for the assessment years 1976 -77 and 1977 -78, wherein the change in the previous year had been allowed. The matter came up before this court in a Reference being ITR No. 217 of 1981, which was decided vide judgment and order dated 8 -9 -1997. The second question referred to in the aforementioned Income -tax Reference was regarding electing previous year independently of what was the previous year of the old firm. This court has held that it was not open to the reconstituted firm to elect a different previous year except in accordance with law. This court has held as follows : 'Turning to the second question, the controversy for consideration is whether the assessee firm was entitled to elect the Diwali year in place of financial year with effect from 3 -11 -1975. The Tribunal proceeded on the footing that after retirement of the three partners absolutely a new and distinct entity came into being and, therefore, the distinct entity was at liberty to elect the Diwali year. The approach of the Tribunal was that upon retirement of the three partners from the firm, the predecessor firm was succeeded by absolutely a new entity, which was at liberty to elect a new previous year either the Diwali year or some other year. It is not the finding of the Tribunal that any firm is entitled to elect a new previous year at any time during the accounting period. We, therefore, proceed by the reasoning of the Tribunal. In view of the decision of the Supreme Court in the case of Empire Estate (supra), it must be held that no new and distinct entity came into being upon retirement of the three partners after 2 -11 -1975, but the assessee firm continued the business after being reconstituted. This being so, the reasoning of the Tribunal that after retirement of the three partners, absolutely a new entity came into being which was at liberty to elect a new previous year of its own, is faulty and cannot be sustained. The reconstituted firm could not have elected a new previous year, except in accordance with law.' The judgment is in (1998) 149 CTR (All) 438.
(3.) RESPECTFULLY following the aforesaid decision, we answer the question referred to us in the negative, i.e., in favour of the revenue and against the assessee. There will be no order as to costs.;