1992 (6) TMI 50 - AT - Income Tax

Accounting Year, Assessing Officer, Best Judgment Assessment, Financial Year, Plant And Machinery, Previous Year

Summary

Issues Involved:
1. Change of accounting year from calendar year to financial year.
2. Compliance with conditions imposed by the Assessing Officer (AO) for the change.
3. Validity of conditions imposed by the AO.
4. Alleged tax evasion by the assessee.
5. Best-judgment assessment under section 144.

Issue-wise Detailed Analysis:

1. Change of Accounting Year from Calendar Year to Financial Year:
The assessee, a tea-growing company, requested a change in its accounting year from the calendar year to the financial year, resulting in a 15-month period from 1-1-1982 to 31-3-1983. The AO initially granted this change subject to specific conditions. However, during the assessment for the year 1983-84, the AO refused to recognize this change, citing non-compliance with the conditions.

2. Compliance with Conditions Imposed by the AO for the Change:
The AO imposed several conditions for the change in the accounting year, including that the net profit for the new period should not be less than the previous year, no new plant and machinery should be installed, and unforeseen expenses would be disallowed. The assessee's failure to meet these conditions led the AO to reject the change in the accounting year.

3. Validity of Conditions Imposed by the AO:
The assessee argued that the conditions imposed by the AO were invalid and contrary to the provisions of the Income-tax Act. The Tribunal agreed, citing precedents that conditions imposed by the AO must be reasonable and not contrary to the Act. The conditions that the net profit should not be less than the previous year and that unforeseen expenses would be disallowed were deemed impossible and unreasonable. The Tribunal concluded that such conditions were invalid and had to be struck off.

4. Alleged Tax Evasion by the Assessee:
The AO accused the assessee of attempting to evade tax by changing the accounting year. The Tribunal found no evidence that the reasons provided by the assessee for the change were false or pretense. The reduction in profits for the assessment year 1983-84 was attributed to the nature of the tea business, where heavy cultivation expenses are incurred early in the year. The Tribunal ruled that the AO's conclusion of tax evasion was unjustified.

5. Best-Judgment Assessment Under Section 144:
For the assessment years 1984-85 and 1985-86, the AO completed the assessments ex parte under section 144, estimating the income at Rs. 60 lakhs for each year. The Tribunal found this estimation to be capricious and not based on the assessee's past records. The Tribunal directed the AO to reframe the assessments in accordance with the law, considering the historical income data of the assessee.

Conclusion:
The Tribunal allowed the appeals, setting aside the orders of the CIT(A) and directing the AO to reframe the assessments for the relevant years, recognizing the change in the accounting year to 31-3-1983 and adopting 31-3-1984 and 31-3-1985 as the respective previous years for the subsequent assessments. The Tribunal emphasized that conditions imposed by the AO must be reasonable and lawful, and the AO's refusal to recognize the change based on invalid conditions was unjustified.