R.L. Gulati, J. - (1.) THIS is a petition under Article 226 of the Constitution challenging an assessment order under the Income-tax Act, 1961,
(2.) THE petitioner is a company registered under the Indian Companies Act, 1913, having its registered office at Kanpur. THE company owns and runs a mill for the manufacture of synthetic fibre, such as nylon filament yarn, metallic cops, nylon staple fibre, etc. THE accounting year adopted by the company ended on 30th June, each year. It appears that the company wanted to change its accounting year to end on 31st December, each year, instead of 30th June. In other words, the company wanted to adopt the calendar year as its previous year. THE company accordingly on 14th June, 1971, applied to the Income-tax Officer for permission to change the previous year. THE following reasons were stated for the change in its letter dated 14th June, 1971 : "1. We are unable to prepare our accounts by 30th June and have regularly taken permission from the Registrar of Companies for extension in the date of holding annual general meeting for presentation of annual accounts. This is mainly because of summer vacations and marriage season immediately preceding 30th June, which hampers the finalisation of accounts as a large number of staff go on leave. 2. Many Government and semi-Government bodies demand statistical and other information for the calendar year and we have to make a lot of adjudgments to arrive at these figures. 3. We wish to fall in line with many other companies who adopted calendar year as their previous year." Shri G.N. Srivastava, Income-tax Officer, Special Circle, C Ward, Kanpur, in whose jurisdiction the petitioner's case fell, granted the permission on 22nd June, 1971, on the following conditions : "You are allowed to change the accounting year from the one ending 30th June to the one ending 31st December. THE previous year for the assessment year 1972-73 will, therefore, comprise of a period of 18 months commencing from 1st July, 1970, to 3Ist December, 1971, and it will be assessed as one unit. It will be subject to the following conditions : (a) that the said change is not on account of the fact that there could be profit for the first 12 months which would be offset by the loss in the next six months; (b) that no amalgamation/reconstruction of this company would be allowable with any other company which will adversely affect the revenue during the accounting year ending December 31, 1971 ; (c) that the depreciation, etc., would be admissible according to the rule; (d) that the said change should not result in the reduction of tax liability including surtax." Accordingly, the company filed its return for the assessment year 1972-73, on 30th September, 1972, showing its income for the period of 18 months from 1st July, 1970, to 31st December, 1971. It may be stated here that the company had added two more units for the production of nylon staple fibre and nylon tyre cord. THEse two units went into production on 15th November, 1971, and 19th November, 1971, respectively. Separate accounts were maintained by the company in respect of these two units and they were closed on 31st December, 1971. THE profit and loss arising out of these two units was also included in the return filed by the company on 30th September, 1972. No steps were taken by the Income-tax Officer to complete the assessment which remained pending until 16th April, 1974, when the company filed a revised return showing a total income of Rs. 1,63,28,627. In the meantime, respondent No. 1, Sri O. S. Bajpai, Income-tax Officer, Central Circle V, Kanpur, came to acquire jurisdiction over the petitioner's case. On 10th April, 1975, he informed the company that it would not be possible to accept the change of the previous year as granted by his predecessor. He gave the following reasons for not accepting the change: "Since you are seeking to set off the loss of next six mouths arising mainly due to losses in SSF and Tyre Cord Units, it would not be possible to allow the change in the previous year in view of the above condition imposed. Please also give break-up of profits for 12 and 6 months, respectively, THE other condition that the said change should not result in the reduction of tax liability is also not satisfied so far as the assessment year 1972-73 is concerned. To the extent the loss arising during the later six months is being sought to be set off with the profits of the earlier 12 months, there is a definite reduction in the tax liability." The petitioner-company was allowed time till 14th April, 1975, to file its objections. On that date the company filed a written reply and requested for further time to enable it to file a detailed reply after consulting its counsel at Delhi. In the interim reply the company stated that it had not violated any of the conditions imposed by the Income-tax Officer and in any case, since the accounts had already been made up to 31st December, 1971, and the accounts for subsequent years had also been closed on that basis, it was no longer open to the Income-tax Officer to compel the company to revert to the accounting year ending on 30th June. It was also stated that the synthetic staple fibre and tyre cord units had been newly set up in November, 1971, and constituted a separate and distinct source of income and since it was the first year of accounting the company had the option to choose its own previous year. The company had closed the accounts of these two units on 31st December, 1971, in accordance with the option granted to it by the Act, In other words, it was stated that whatever might be the position with regard to the business already in existence, the previous year in respect of the two newly added units could not be disturbed. The Income-tax Officer did not pay any heed to the request of the company for further time and proceeded to pass an assessment order the same day, namely, 14th April, 1975. He refused to accept the change of the previous year from 30th June to 31st December and after computing the profits for 18 months on the basis of the assessee's accounts he determined the proportionate profits for the 12 months ending on 30th June, 1971, and made as assessment accordingly. In doing so he ignored completely the loss and depreciation relating to the newly added units. He held that as the company had failed to comply with two of the conditions imposed by the Income-tax Officer, the permission already granted for the change of the accounting period stood withdrawn. As against the returned income of Rs. 1,63,28,627, the Income-tax Officer computed the income at Rs. 11,47,13,978. The petitioner has challenged this order by this writ petition on a large number of grounds.
(3.) BEFORE we deal with the contentions on merits we must dispose of a preliminary objection. It is urged that there is a right of appeal against the assessment order and an appeal, in fact, has been filed by the company, which is pending, and, therefore, we should not interfere under Article 226 of the Constitution. It is, however, not disputed that the existence of an alternative remedy is not an absolute bar to the exercise of jurisdiction under Article 226 of the Constitution. If an order has been passed in violation of the principles of natural justice, is without or in excess of jurisdiction or sutlers from a patent error, the existence of an alternative remedy notwithstanding, this court can legitimately interfere. We shall presently show that the impugned assessment order suffers from all the three infirmities. It has been passed in violation of the principles of natural justice, is in excess of jurisdiction and is palpably erroneous. That apart, Mr. Mehta, the learned counsel appearing for the company, has made a statement that in case the assessment order is not quashed, he will not press before the appellate authority the grounds raised in this writ petition. In view of this statement, we overrule the preliminary objection. We shall first demonstrate how the impugned order contravenes the principles of natural justice. The petitioner-company applied for the change of the accounting year on 14th June, 1971, and the necessary permission was granted by the Income-tax Officer on 22nd June, 1971. Both these dates are prior to 30th June, 1971, when the company was supposed to have closed its accounts. In pursuance of the order granting permission to change the accounting year, the petitioner-company applied for and obtained the permission to change its financial year from the Registrar of Companies on 26th August, 1971. Accordingly, the company did not close its accounts on 30th June and allowed them to run up to 31st December, when the accounts were finally closed. After the accounts were passed by the board of directors and the shareholders the company filed its return on 30th September, 1972. The Income-tax Officer did not take any action on the return and allowed the case to remain pending for a long time. Thereafter, the company filed a revised return on 16th April, 1974. It is clear that the stakes in the case were very heavy inasmuch as a tax of several crores was involved. The Income-tax Officer even then did not take any further proceedings. Normal period of limitation for an assessment in a case like the petitioner's is two years from the end of the assessment year in which the income becomes first assessable as provided by Clause (iii) of Sub-section (1) of Section 153. Thus, the last date of limitation for completing the assessment was 31st March, 1975. The limitation, however, stood extended up to 15th April, 1975, as a result of the filing of the revised return as provided under Clause (c) of Section 153(1). The Income-tax Officer took up the assessment proceedings for the first time in September, 1974. Recalled for some routine statements and information and also the production of accounts but he did not raise any question with regard to the change of the previous year, even though the return related to a period of 18 months instead of the normal period of 12 months. For the first time on 10th April, 1975, the Income-tax Officer issued a letter indicating that he was not prepared to allow the change of the previous year on the ground that the company had not complied with certain conditions imposed by his predecessor at the time of granting the permission. This letter was served on the company in the afternoon of 11th April, 1975. The company was required to submit its reply on or before the 14th April, 1975. Twelfth April was a Saturday and 13th April was a Sunday. The company, therefore, legitimately made a grievance that the time allowed to it was very short. It filed an interim reply on 14th April, 1975, and requested the Income-tax Officer to grant further time so as to enable it to submit a detailed reply after consulting its legal advisers at Delhi. The Income-tax Officer ignored this request and completed the assessment on 14th April, 1975, itself. The assessment order runs into 65 pages involving a complicated figure work relating to the computation of income and calculation of depreciation and development rebates, etc. The contention of the learned counsel for the company is that it was not possible for the Income-tax Officer to have written out such a long and complicated assessment order in one day on the 14th April, 1975. According to him the Income-tax Officer had already written out the assessment order and the issue of a show-cause notice was merely an eye wash. This argument is not altogether devoid of force. It looks highly improbable that the Income-tax Officer could have passed the impugned order, which indeed is a lengthy and complicated one, on the 14th April, 1975, after hearing the company. However, it is not necessary to record any firm finding on this point because we are otherwise satisfied that the petitioner was denied a reasonable opportunity to meet the case set up by the Income-tax Officer. As we have indicated above, the stakes were very heavy. The petitioner-company had declared an income of Rs. 1,53,28,627 and as against this figure the Income-tax Officer computed the income at Rs. 11,47,13,978 and raised an additional demand of Rs. 7,17,89,421. This is a colossal demand which if unjustified can threaten the very existence of the company. In the circumstances, it was absolutely necessary for the Income-tax Officer to have allowed adequate opportunity to the assessee-company to explain its case. The two days' period allowed by the Income-tax Officer, in our opinion, was wholly insufficient. The request of the company for a longer time was completely justified. It is true that the Income-tax Officer was hard pressed for time as the limitation for making the assessment was to expire on the following day, i.e., on 15th April, 1975 ; but for this the Income-tax Officer alone was to be blamed. The company on its part had done all that it could do. It filed the original return as early as on 30th September, 1972. Even the revised return was filed on 10th April, 1974, and the Income-tax Officer had a period of one year from that date to complete the assessment. But for reasons best known to him he did not take up the assessment proceedings until the fag end of the limitation. Had the Income-tax Officer taken up the case well in time, this situation might have been averted. Even if there was very little time at the disposal of the Income-tax Officer, because of the approaching limitation, he could not violate the principles of natural justice. The argument that the Income-tax Officer was hard pressed for time is an argument of despair which cannot be allowed to alter the course of justice. The predicament in which the Income-tax Officer found himself was his own creation. We cannot allow the petitioner to suffer injustice. A similar argument was raised before the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas, 1959 36 ITR 569, 576 (SC). and this is how the Supreme Court disposed of that objection : "Mr. Rajagopala Sastri pointed out that an assessee might file the 'voluntary' return on the last day showing income less than the taxable limit and the department would, in that case, be driven to complete the assessment proceedings within a few hours or lose the right to send a notice under Section 34(1). An argument ab inconvenienti is not a decisive argument. The Income-tax Officer could have avoided the result by issuing a notice under Section 23(2) and not remaining, inactive until the period was about to expire." The same can be said in the instant case. If the Income-tax Officer had not remained inactive for such a long time the situation he found himself in would not have been precipitated. We have, therefore, no hesitation in holding that the company was denied a reasonable opportunity and the impugned order contravenes the principles of natural justice and for that reason is void. ;