1977 (4) TMI 9 - HC - Income Tax

Summary

Issues:
1. Whether the assessee was entitled to close its accounts on November 5, 1962, for the assessment year 1963-64 without obtaining the ITO's consent as per s. 3(4) of the I.T. Act, 1961?

Analysis:
The case involved a registered firm engaged in the manufacture and sale of gold and silver jewelry. The firm filed a return for the accounting year from November 5, 1961, to November 5, 1962. The issue arose when the ITO objected to the firm closing its accounts on November 5, 1962, instead of on Diwali day, which fell on October 26, 1962, as per the partnership deed. The ITO assessed the firm only up to October 26, 1962, and completed the assessment. The AAC rejected the firm's contention, stating that the firm could not deviate from the partnership deed's terms. However, the Tribunal noted that the firm consistently closed its accounts on a day different from Diwali day, and the I.T. department had assessed it accordingly over the years. The Tribunal concluded that the firm had not altered the accounting year to gain an advantage, and hence, did not need the ITO's consent to close its accounts on November 5, 1962.

The High Court referred to Section 3 of the I.T. Act, which defines the "previous year" and provides options for fixing the financial year. Sub-section (4) restricts the assessee from varying the previous year without the ITO's consent once an option has been exercised or the assessee has been assessed. However, in this case, the Tribunal's findings indicated that the firm consistently closed its accounts around Diwali day, not precisely on Diwali day as per the partnership deed. The firm had been assessed accordingly by the I.T. department without exception. Therefore, the High Court held that the firm had effectively exercised its option to close its accounts around Diwali day, and as it had been consistently assessed based on this practice, the ITO's consent was not required to close the accounts on November 5, 1962. The court answered the question in the affirmative, in favor of the assessee, allowing it to close its accounts without the ITO's consent.

In conclusion, the High Court ruled in favor of the assessee, stating that it was entitled to close its accounts on November 5, 1962, for the assessment year 1963-64 without obtaining the ITO's consent as per Section 3(4) of the I.T. Act, 1961. The court awarded costs to the assessee, including advocate's fee.