Commissioner of Income Tax vs Punjab Gas Cylinder Ltd.

The Income Tax Appellate Tribunal, Chandigarh Bench, has referred the following question of law for opinion of this Court arising out of its order dated July 20, 1995 in I. T. A. No. 167 of 1990 relating to the 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 January 1, 1983 to June 30, 1984 u/s 3(1)(e)(i) and was not required to obtain permission u/s 3(4) of the Income Tax Act, on the ground that business had commenced with effect from December 1, 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 December 1, 1983 to June 30, 1984. The Assessing Officer held that this amounted to change of previous year without permission u/s 3(4) of the Act and on that ground the claim for loss for that year was rejected. The plea of the Assessee was that since new business of the Assessee had commenced on December 1, 1983, the provision u/s 3(4) was not applicable, as the Assessee had a right of choice u/s 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, with effect from December 1, 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)(e)(i) of the Act. There was no other source of income prior to December 1, 1983. There was no question of any new source of income in the hands of the Assessee. The learned 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 learned Counsel that even if the previous year adopted by the Assessee was not acceptable and the accounting period was treated as having ended on December 31, 1983 to December 31, 1984, loss could have been determined and allowed to be carried forward accordingly. By way of alternative plea, the learned Counsel has contended that the loss up to the period December 31, 1984, should have been allowed. It is also explained that the loss from January 1, 1983 to December 31, 1983 had been shown in the books of account at Rs. 1,63,080. Loss from March 1, 1983 to December 31, 1983 had been shown in the books of account at Rs. 8,66,671. Loss from January 1, 1984 to December 31, 1984, had been shown at Rs. 18,02,848. The plea of the learned Counsel is that if the loss up to June 30, 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 December 30, 1984. But that has also not been allowed. In assessment year 1986-87, the year ending has been shown by the Assessee as June 30, 1985, and that has been accepted. In view of this also, the learned 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 learned Counsel that no miscellaneous 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 no new source of income, though it was explained mistakenly before the Assessing Officer, that from December 1, 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 relevance and of no consequence. Looking to the entire facts, we are of the view that when the business had commenced with effect from December 1, 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 up to June 30, 1984, has to be allowed, treating the ''previous year'' as ending on June 30, 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, 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 December 1, 1983, and in such a situation the Tribunal was justified in holding that no prior permission was required u/s 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.