Calcutta High Court
Shreepati Distributors Ltd. And Anr. vs Income-Tax Officer And Ors. on 4 July, 1986
Equivalent citations: [1987]168ITR530(CAL)
Author: Suhas Chandra Sen
Bench: Suhas Chandra Sen
JUDGMENT Suhas Chandra Sen, J.
1. Section 3(4) of the Income-tax Act, 1961, defines "previous year ". Generally, it means an accounting year of 12 months. It may be the financial year or at the option of the assessee, any other period of 12 months. Section 3(4) lays down that if an assessee has once exercised his option of choosing his "previous year", he shall not be entitled to vary his accounting year except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose.
2. In the instant case, the assessee is a company which used to follow the year ending on 31st December, as its "previous year". This system continued up to the assessment year 1982-83. For the assessment year 1983-84, the assessee wanted to change its previous year to the financial year. This change was allowed by the Income-tax Officer and the assessment for the assessment year 1983-84 was completed on the basis of the previous year from January 1, 1982, to March 31, 1983. On March 14, 1985, the assessee once again wanted to change its previous year from financial year to the year ending on June 30.
3. This prayer was refused by the Income-tax Officer by an order dated May 31, 1985. The ground that was given by the Income-tax Officer was that once there had been a change of previous year, the same cannot be allowed to be changed again. Moreover, if the assessee was allowed to change its previous year from March 31, 1985, to June 30, 1985, the assessment will have to be done for the assessment year 1986-87. In such a situation, there will be no assessment for the assessment year 1985-86 and there will be a substantial loss of revenue inasmuch as the rate of income-tax for companies had been reduced by 5% and the provisions of Section 37(3A) stood omitted with effect from the assessment year 1986-87. The petitioners prayer for change of accounting period was accordingly rejected by the Income-tax Officer.
4. The petitioner has moved this writ petition and has contended that the Income-tax Officer should have allowed the assessee to change its previous year as prayed by it and the reasons given by the Income-tax Officer for not allowing the prayer of the assessee were bad in law. My attention was drawn to the judgment of the Supreme Court in the case of Esthuri Aswathaiah v. CIT [1966] 60 ITR 411, where the result of a change in previous year was that an assessment had to be done for a period of 21 months. It was argued that in that case, the Supreme Court recognised that the length of the previous year may stretch to a period beyond 12 calendar months when the accounting period of an assessee was being changed.
5. In that case, the Supreme Court recognised that the Income-tax Officer had power to accord sanction to the change in "previous year" on the condition that the "previous year" would consist of the entire period of 21 months. The Supreme Court pointed out that this condition properly safeguarded the interests of the Revenue.
6. Whether the assessee should be allowed to change its previous year or not is a question of discretion of the Income-tax Officer. It is true that the discretion must be exercised reasonably. The Income-tax Officer has really given two reasons for not allowing the assessee's application. The first reason is that the assessee had already been allowed to change its previous year recently. The second reason that has been given was that if the change is allowed, there will be loss of revenue.
7. The Income-tax Officer has stated in his affidavit that if the request for the change of accounting year was allowed in this case, there would have been no assessment for the assessment year 1985-86. This would have resulted in a substantial loss of revenue. In the assessment order for the assessment year 1984-85, Rs. 14,39,199 was disallowed under Section 37(3A). With effect from the assessment year 1986-87, Section 37(3A) had been omitted. If the accounting year was to close on March 31, 1985, according to the option (earlier) exercised by the assessee, there would have been a substantial disallowance under Section 37(3A) in the assessment for the assessment year 1985-86. Return for the assessment year 1985-86 had not been filed. The Finance Bill for 1985-86 was introduced in the Lok Sabha on March 16, 1985. In that Bill, there was a proposal to omit Section 37(3A) with effect from April 1, 1986. There was also a proposal to the reduce tax on companies with effect from April 1, 1986. This Bill was ultimately passed by Parliament and received the assent of the President on May 24, 1985. It is the contention of the assessee that the board of directors of the company passed a resolution for change in the accounting period long before the budget proposal was introduced in Parliament. It was further argued that the application was made even before the Finance Bill was introduced. Therefore, it cannot be said that the application was made mala fide and with any ulterior motive.
8. In my judgment, the question in this case is not of any mala fide intent on the part of the assessee. The Income-tax Officer has taken the view that allowing the change at this stage would result in loss of revenue. 1 am not persuaded to hold that the Income-tax Officer has taken into consideration something which is irrelevant. This is a very material consideration. Moreover, the assessee has not explained why it wants to change its accounting year with such frequency.
9. The power to allow the prayer of the assessee is a discretionary power vested in the Income-tax Officer. Nothing has been shown to suggest that the power was exercised in this case arbitrarily or on irrelevant considerations.
10. The writ petition, therefore, fails and is dismissed. The interim order is vacated.
11. There will be no order as to costs.