1994 (2) TMI 101 - AT - Income Tax

Summary

Issues Involved
1. Whether the Dankuni Unit constitutes a separate source of income for the assessee.
2. Whether the assessee can adopt a different accounting year for the Dankuni Unit.
3. Whether the Commissioner of Income-tax (CIT) was correct in setting aside the assessment order under section 263 of the Income-tax Act, 1961.

Detailed Analysis

Issue 1: Separate Source of Income
The primary contention was whether the Dankuni Unit is a separate source of income for the assessee. The CIT argued that both the Dankuni and Taratola Units were manufacturing the same type of products using the same raw materials and were functioning under the same management, thus constituting a single business. However, the Tribunal found that the CIT had confused the terms "business" and "source of income." The Tribunal cited several judgments, including Seth Shiv Prasad v. CIT and Lady Kanchanbai v. CIT, to establish that a "source of income" is defined as a distinct and separate origin of income capable of consideration in isolation from other sources. The Tribunal concluded that the Dankuni Unit is indeed a separate source of income for the assessee.

Issue 2: Different Accounting Year
The Tribunal examined whether the assessee could adopt a different accounting year for the Dankuni Unit under section 3(3) of the Income-tax Act. The CIT had contended that the assessee could not opt for a different accounting year for the Dankuni Unit since it was not a new business. The Tribunal, however, found that section 3(3) allows an assessee to have different previous years for different sources of income within the same head. The Tribunal cited multiple judgments, including India Sea Foods' case and K. Ramachandra Rao's case, to support the view that the assessee is free to adopt a different accounting year for the Dankuni Unit. The Tribunal emphasized that the nature of the business or the type of products manufactured is irrelevant for determining whether the units are separate sources of income.

Issue 3: Validity of CIT's Order under Section 263
The CIT had set aside the assessment order on the grounds that it was erroneous and prejudicial to the interests of revenue. The CIT argued that the Income-tax Officer (ITO) had erred in allowing the loss from the Dankuni Unit to be set off against the profits of the Taratola Unit. The Tribunal found that the CIT had given specific findings on the merits of the case rather than alleging non-application of mind by the ITO. The Tribunal noted that the CIT's decision was based on a misinterpretation of the terms "business" and "source of income." The Tribunal concluded that the CIT's order was not sustainable and thus canceled it.

Conclusion
The Tribunal ruled that the Dankuni Unit is a separate source of income for the assessee, allowing the assessee to adopt a different accounting year for it. The Tribunal found the CIT's order under section 263 to be erroneous and canceled it, thereby allowing the appeal filed by the assessee.